Annual financial reports: Keeping up with the demand for authentic sustainability reporting

Apr 23, 2020

Sponsored content

There has been much debate in the last year about ‘greenwashing’, the practice of exaggerating a company’s environmental credentials with the goal of misleading its audiences. Accusations have been levelled at some well-known global brands1 that they are jumping on the ecological bandwagon or seeking to detract attention from the true cost of their activities on nature, the climate and our environment. Both corporations and governments have been in the firing line and the debate has expanded to embrace the question of responsibility and, specifically, whether governments and international institutions should be legislating to force change where business has seemed to fail.

Core to this debate is the nature of reporting and this has exploded to include all of the elements that potentially make a company a good or bad corporate citizen; reporting has settled on the abbreviation ESG, encompassing the environmental, social and governance components of commercial activity. ESG is often used interchangeably with sustainability but the latter also includes the sustainability of a company’s activities as they relate to ongoing performance and growth as well as to a company’s alignment with the principles embodied in the UN’s Sustainable Development Goals (SDGs).

Defining accuracy

Perhaps ‘authentic’ in the title of this blog should actually read ‘accurate’ and, if yes, what might the difference be?

What is clear is that this subject is a minefield. It is open to interpretation and has, for now at least, few defined measurements that enable comparison across industries or even between individual companies. Of course, many companies are genuinely passionate about their ESG credentials and, therefore, seek to report their activities with integrity. Many more are on the journey to fundamental change in their activities that will make them more sustainable in all senses of the word.  All these companies may very well be authentic in their reporting but, equally, all suffer from the fact that it is very difficult to accurately evaluate the sustainability of a company’s activities either in a meaningful way or in a way that makes it easy for audiences of non-experts to gauge progress. This has led to calls for regulation2 or improved reporting that will enable observers to better compare and contrast ESG performance.

Change (and regulation) is coming

Undoubtedly not all regulation is wanted by those being regulated. Nevertheless, on this subject perhaps more than any other, there is a groundswell of opinion that is demanding greater regulation; indeed, many enterprises in financial services, an industry critical to the decarbonization of economies, are now part of this movement as they seek to operate on a level playing field for monitoring and reporting.

A degree of self-regulation is already in place. Right now, companies can align with the wide-ranging UN SDGs mentioned above, the six UN-supported Principles for Responsible Investment (PRIs), the 77 fiduciary standards developed by the Sustainability Accounting Standards Board (SASB) or the recommendations of the Task Force on Climate-related Financial Disclosures (TCFD).  The EU has also stepped in, finally agreeing the principles of its Sustainable Finance Taxonomy last year with climate-related objectives expected to apply from next year.

Conversely, as many as a third of institutions are using their own internal measures for ESG reporting according to a survey by CFA Society New York while a significant number (24 percent) still use no metrics at all; this is despite the fact that a whole sector of third-party analytics providers has sprung up in the wake of the ESG debate. These figures more than anything require companies to take action.

It is no longer a sustainable business practice to ignore the need to accurately report on environmental impact since, regardless of industry, all companies do have a footprint that can actively be minimized. Likewise, ignoring the social implications of commercial activity is untenable with business now expected to foster positive relationships with customers, suppliers, employees and the wider community in which they operate. Finally, scrutiny over the governance of enterprises has never been greater and all companies are rightly under the spotlight over the conduct and pay of their leadership, the controls under which they operate and the rights afforded to their shareholders in having a say over the way they are run.

No longer any excuses?

Understandably, the focus has been on getting started – having something at least to act as a stake in the ground for a company needing to define its ESG credentials. But expectation is rising fast and the need for a best practice approach to ESG reporting is rapidly becoming an imperative.

Engaging with an independent service provider can deliver the necessary coverage required in this area. With this approach, you are more likely to benefit from the wider learning that it has already undertaken combined with the experience from having delivered numerous projects across multiple industry sectors. It should also be able to demonstrate subject matter expertise in reporting, particularly in terms of its understanding of critical regulatory frameworks, not just at a local level but also globally where the company requires international reach for its reporting.

SDL is one such agency, offering an end-to-end annual reporting service which covers local and international jurisdictions, translation in up to 180 languages and a full-service design and typesetting capability for all formats, content types and channels. Delivering hundreds of annual reports each year, including a large proportion that involve ESG statements, SDL has both the skills and the global scale to streamline the entire report-issuing process. Find out more about SDL here.

 

Notes:

  1. See for instance:
    1. https://www.bloomberg.com/news/articles/2020-02-19/greenwashing-is-going-to-get-more-expensive-green-insight
    2. https://www.wired.co.uk/article/corporate-greenwashing
    3. https://inews.co.uk/news/environment/gap-missguided-urban-outfitters-greenwashing-save-planet-damaging-environment-1996438
    4. https://www.theguardian.com/environment/2020/jan/09/blackrock-joins-pressure-group-taking-on-biggest-polluters
    5. https://www.ft.com/content/c4cefa40-f4ab-11e9-b018-3ef8794b17c6
  2. See for instance:
    1. https://www.forbes.com/sites/bobeccles/2020/03/16/here-is-how-to-set-global-standards-for-nonfinancial-information/#14c1afea6e01
    2. https://www.ft.com/content/92c728e6-1ba3-11ea-97df-cc63de1d73f4
    3. https://www.finextra.com/newsarticle/34859/ecb-poised-to-champion-climate-change-action-under-lagarde

 

This content is provided by SDL and did not involve IR Magazine journalists. For further information on SDL solutions for Investor Relations please click here.

Sign up to get stories direct to your inbox
logo-black logo-black
Loading