Finding Value in ESG Reporting Is Critical in Today’s Legislative Landscape

Pressure from regulators and increasingly demanding investors, more awake to
climate risks than ever before, have kept sustainability reporters on their
toes
these past couple of years. What was once widely considered a supplementary
aspect of corporate communications, ESG reporting has become a core
requirement for businesses all over the world.

Mandatory reporting frameworks, such as the EU’s Corporate Sustainability
Reporting Directive
(CSRD)
and enhanced climate-disclosure
regulations
taking hold in the US, are pushing companies to be more transparent than
ever. Meanwhile, the scope of sustainability reporting has expanded — firms are
now expected to include indirect emissions from their entire value
chain (scope 3)
in their reports.

Technological advancements are also playing a key role in the transformation.
AI-derived data
collection
is being normalized and more businesses now have the tools to gather, track and
verify sustainability data more efficiently and accurately.

As the landscape continues to shift, companies will need to stay ahead of
evolving requirements. One organization supporting brands in navigating their
reporting journey is
SiaXperience — an
experience design agency, part of management firm Sia
Partners. We caught up with the company’s
Managing Director of ESG Communications, Judy
Sandford, to explore what’s changing
and how companies can enhance their reporting practices to get the edge.

It feels like the sustainability function within many businesses has been swallowed up by reporting, which has left them little resources to do anything. Is that how you see things?

Judy Sandford: Yes. That’s because there are more regulations, especially in
the EU with CSRD. For US companies that are affected, they are really struggling
to keep up. It’s a huge task to gather the information, verify it, have it
assured and then put it in the right format in time for the deadlines.

Of course, there’s a regulatory burden. But in terms of building an effective narrative, reporting should be seen as a good thing to do. How do you guide brands on their reporting journey?

JS: Well, it started out as a PR exercise. Companies saw some value from
that in terms of burnishing their reputation. Internally, it brought all the
different departments together that may not have been talking to each other to
identify the biggest risks and opportunities.

So, it wasn’t so much about the report — it was about considering the
interrelations: how to make money from sustainability activities, and how
sustainability can help save money? But now, it’s fallen over to the legal and
compliance people because of all the incoming regulation — and they’re not as
interested in telling nice stories. They just want to show that they’re doing
what they’re supposed to be doing, making progress and being profitable.

So, we’ve seen lots of companies creating shorter reports that are very focused on the most material issues — which is not a bad thing.

JS: That’s right. Double
materiality
is a whole new thing for a lot of companies, too. And that requires you to not
only understand what impacts ESG issues have in the business but the impacts
they have on society and the environment. And that’s a lot harder to determine.
You have to really engage externally and assess the risks for each topic.

Is the shift of reporting towards legal and compliance teams the reason why ‘ESG’ is the new buzzword in sustainability circles?

JS: Yes. ESG emerged because of the investor focus, and it overlaps with
responsible
investing
– which uses filters to decide what to invest in. ESG really is making sure that
the company is looking at any risks across E, S and G; so they can make smart
investment decisions.

Here in the US, there has been a bit of a political
backlash
with some groups claiming that ‘all this ESG stuff’ is not helping the bottom
line – and the bottom line is the most important thing. So, in certain states,
some companies are still reporting on the same things and simply calling it
‘sustainability’ or ‘responsibility’ or something that’s less divisive.

As much as we don’t like the politicization of ESG, clearly something’s got to give. Is the onus on businesses to use their reporting to better spell out the value of ESG to the bottom line?

JS: Nobody can argue with making more money or saving money; it’s about
making that connection, being able to measure it and show evidence that would
make anyone believe that a company is doing the right thing. If you have to call
it something else for a while to make some people less combative, then that’s
fine.

With new rules coming into play, there will be more reporting. So, do sustainability reports need to work harder and be able to do multiple things to be valuable?

JS: We work with a lot of Fortune 500 companies — very complex organizations
with very complex approaches to solving things like circular
packaging
or lightweighting
materials.
We help them to tell that story, but not in a typical way — we might do it
visually, through information graphics. This helps people absorb the story in a
way that’s engaging, compelling and memorable — rather than using lots of
paragraphs that, frankly, nobody wants to read. And that includes investors —
they are people, too; and they appreciate things being communicated simply.

We’re also finding that storytelling is moving outside of the report; it’s
showing up in press releases on websites, there’s a lot of video work, and the
stories have to be compelling in their own way — whether in drawing on people’s
emotions or being inspiring.

So, regardless of the stakeholder, it’s got to be compelling. Do you think we will see more examples of companies adopting a hybrid approach — where they release a full, data-driven and regulated document for compliance purposes; and then a separate report, full of more interesting stories?

JS: Yes. And the storytelling will have to be much more real-time — you
don’t want to hear about it six months later.

As someone that’s worked in sustainability communications for many years, do you see the emerging mandatory-reporting frameworks as being helpful in terms of driving progress in performance?

JS: I think the push towards double materiality is helping companies get
super focused on the top areas they need to be addressing. It also creates a
structure for the report and helps them home in on the biggest issues where they
have the greatest impacts.

One of the challenges is the sheer volume of data that has to be collected —
especially with very large, global organizations. One way that companies are
doing that is using technology to help them. Using something like Workiva,
companies can create a database and every document they produce can link back to
that database. And when a fact changes, it’s updated across all the reports. So,
things like that are super useful.

And then there’s artificial intelligence, which people have mixed feelings about.

JS: Yes, but it can create efficiencies in terms of scanning documents for
benchmarking or pulling relevant data out of reports or sort of consistency
across reports. You can set up customized ways to help it do your work faster.
But I think there’s always going to have to be a human element to double check
everything.

One of the hardest things brands will have to contend with is being able to show
they have plans in place to make progress against their goals and targets. It’s
not enough to simply put them out there and report; you’ve got to show that
you’re actually doing the work that you need to do.

Most companies don’t have very many people assigned to these tasks — so, they’re
under tremendous
pressure.

Is there a danger that ‘perfect’ data collection is getting in the way of positive storytelling — that brands are reluctant to tell stories because they don’t have the full picture?

JS: I think they might downplay certain topics that they feel they’re not
making enough progress on or that are under attack politically. But they have a
clearer picture of where they stand against their goals.

Net zero is now something that a lot of companies are realizing might be
unattainable.
And companies are now being held accountable for their Scope 3
emissions.

It feels like everything’s getting more complex. And with increasingly stretched sustainability teams, what does this mean for the future of reporting?

JS: It will be interesting to see where governments go over the next year.
There are so many distractions, with politics and war. But I think smart
companies
still see the value of reducing
emissions
and recent weather
events
are making the public more and more aware of the impact of climate change.

Companies do need to invest in their reporting — hiring more data science people
and more compliance people. I think the only way to make that change is to shift
the responsibility out of the sustainability office and make it everybody’s
responsibility.

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Tom Idle

Content creator extraordinaire.

Tom is founder of storytelling strategy firm Narrative Matters — which helps organizations develop content that truly engages audiences around issues of global social, environmental and economic importance. He also provides strategic editorial insight and support to help organisations – from large corporates, to NGOs – build content strategies that focus on editorial that is accessible, shareable, intelligent and conversation-driving.

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Published Oct 28, 2024 8am EDT / 5am PDT / 12pm GMT / 1pm CET