Sustainability reporting and environment, social and governance (ESG) disclosures are on the rise around the globe — we’ve seen increased regulation in Asia, it has become expected practice in Europe, and investors in the United States are increasingly using this information to inform their decision-making.
2018 saw some of the first communications in line with the Task Force on Climate-related Financial Disclosures (TCFD) recommendations, the codification of the Sustainability Accounting Standards Board (SASB) Standards, and a new draft standard from the Global Reporting Initiative (GRI) on tax and payments to governments. The field — and what is expected of companies — is evolving at an accelerating pace.
The most essential development that we need to see in the coming years, however, will be the alignment and harmonization of reporting standards to enable more efficient reporting processes that result in more user-friendly, comparable reports on the most important sustainability topics. For this reason, we strongly support the continued work of the Corporate Reporting Dialogue.
As one interviewee for our recent report, “Redefining Sustainable Business: Management for a Rapidly Changing World,” told us, “It is like the wild west out there in terms of what is reported. We would really like to see the reporting standards organizations get together and streamline.”
Over the past year, we at BSR have been working with over 20 companies to explore and influence this field through our Future of Reporting collaborative initiative. This group of companies seeks to shape the future of reporting by sharing reporting best practices, exploring ways to improve the decision-usefulness of reports and informing the work of various reporting organizations. (While this post is informed by that work, the opinions expressed here are those of BSR.)
These are the five innovations that we would like to see improve reporting and disclosure.
1. More reporting practitioners shaping the future
Reporting practitioners play an essential role in shaping the future of reporting, including through the work of the Corporate Reporting Dialogue. We heard loud and clear in our conversations with companies that they want to play a role in shaping the future of reporting; practitioners are, after all, the ones who hold the pen when reports are written. Because they are most closely involved in the use of reports to improve performance, they have fundamental insights into how harmonized reporting standards can improve company performance. Standardization across various frameworks should be a central aspect of this work, as this will help companies disclose the most decision-useful information for their stakeholders and increase efficiency.
2. More companies and investors quantifying impact
We look forward to continued effort from companies and investors to meaningfully quantify and report on impact, including related to the SDGs. This applies to both the impact of the company on sustainability and the impact of sustainability on the performance and direction of the company. Companies should move from mentioning the SDGs and mapping their existing programs to them to prioritizing those SDGs most relevant to their business and measuring their contributions and impacts. Ideally, this measurement also should inform company strategy — it creates an opportunity to link disclosure with performance. Investors are increasingly using this information both in individual decisions and the creation of new funds.
3. More application of TCFD recommendations
We hope to see increasing efforts to apply the TCFD recommendations, including to undertake and report on scenario analysis. Implementing the recommendations may be challenging for many companies, but companies looking do so don’t necessarily need to implement them all immediately — they can start with those that are most closely aligned with their existing reporting. Those elements that pertain to organizational change are likely to be the most difficult for companies to implement, but this creates an opportunity for them to make progress over time. Companies also can use their sustainability reports and CDP disclosures as a testing ground for information that ultimately may reside in mainstream financial disclosures.
4. More involvement of ESG disclosures
More involvement and oversight of ESG disclosures at the board level will help raise the profile of sustainability efforts as a contributor to long-term value for companies and society. Increasingly, forward-looking companies are appointing directors with specific sustainability-related expertise, and boards and board committees are including aspects of sustainability into their charters to govern ESG issues at the highest levels. Board oversight of sustainability strategy and performance overall is increasingly common; a recent study of the S&P 500, State of Integrated and Sustainability Reporting 2018, found that 212 companies (42 percent) have a formal board committee overseeing sustainability.
5. More sustainability details on financial disclosures
We hope to see more sustainability information included in mainstream financial disclosures (including the Form 10-K), yet we also hope to see more detailed issue-specific sustainability reporting targeted at specific audiences. The Future of Reporting group had energetic discussions across these aspects. Companies should not try to include all disclosures in one report, but issue different reports focused on the differentiated needs of different target audiences.
If you’d like to be a part of the conversation about the next generation of sustainability reporting, please contact BSR to learn more about how you can participate in the Future of Reporting group.