General 4 — Annual Reporting

Sustainability and ESG are now mainstream content for corporate reporting. Companies with a large amount of this data often elect to publish a separate Sustainability Report to avoid it competing with their prime corporate story.

One solution for some companies may be the Integrated Reporting format where this type of narrative is incorporated in the interconnected structure of the report rather than tacked onto the end in a disconnected fashion. But there is definitely a role for a dedicated Sustainability Report for some companies.

What’s the difference between Sustainability and ESG?

It’s pretty subtle. In a massive over-simplification, essentially ESG is a governance lens on similar subject matter. So how you express the information will likely unfold differently depending on which lens you were looking through when you started.

And here’s the opportunity - you’ve got to communicate it right. As we always say here at Insight, start with your audience and reframe how you talk with different stakeholder groups accordingly. With annual reporting now firmly multi-stakeholder, we find ourselves talking to employees, consumers and media as much as we are to investors. And the first three of those care about environmental and social issues, less about governance, and are generally unfamiliar (around 64%) with the term ESG.

There is often a slight disconnect between formal ESG initiatives and what research tells us readers actually desire. It shines a light on how to make ESG metrics and reporting more relevant to non-investor audiences, and that differs from the way ESG investors use the data.

The reality is that sustainability and corporate social responsibility are inherently easier concepts for consumers to understand and embrace than are the environmental, social and governance labels. Non-investor audiences want stories based on evidence that personally resonates with them.

So, there are lessons here about converting the ESG frame of mind to a narrative form that most stakeholders can relate to more easily. The bottom line is that today’s corporate report is looked to by all stakeholders, not just professional investors, and they need the drier information interpreted for them into accessible stories. You can read more about Sustainability vs ESG here.

Which default lens are you looking through when curating your ESG information for your annual report – the ESG one or the hearts and minds one?

There is another difference - most Sustainability reporting tends to be one way: about the company’s effect on people and the environment. But ESG (and Sustainability if core <IR> principles are being followed, but rarely are) has a more obvious expectation of a closed loop: the reciprocal implications of what havoc people and the environment might wreak on the business if not protected and nurtured. For more on this, read this blog post.

Selecting a Disclosure Framework

Any form of sustainability report needs to report against a recognised global framework to have meaning. Select a reporting framework or set of frameworks that makes sense for your organisation, checking that you’re comfortable with the required disclosures associated with them. Some of the most commonly used frameworks and disclosure standards include:

· Global Reporting Initiative (GRI)

· Carbon Disclosure Project (CDP)

· Sustainability Accounting Standards Board (SASB)

· Task Force on Climate-Related Financial Disclosures (TCFD)

· United Nations Sustainable Development Goals (SDG)

These frameworks are not mutually exclusive - many of our clients’ reports incorporate content from across multiple frameworks, TCFD and SDG in particular. However, GRI currently remains the most widely accepted lead framework. And companies are now really having to take their need to disclose further along their supply chain more seriously. In GRI terminology, that means reporting on Scope 3 (third party) emissions, as well as their own (Scope 2).

We have observed a maturity in the way that clients report UN SDGs: what used to be lip service value-signalling (read about SDG Bingo here) has evolved to much more meaningful mapping to the many initiatives beneath each SDG, measuring themselves against these rather than the headline statement goals. A much more authentic approach.

It’s still early days for TCFD and Modern Slavery. Because of the mandated and fairly dry nature of the required disclosures, right now most of our clients tend to prepare both as separate, online documents, while ensuring they are both referred to in their annual reports.

And keep an eye on the New Zealand-specific External Reporting Board, who are currently preparing an Aotearoa New Zealand Intergenerational Impacts Reporting Framework focused on: