Earlier this month, Reuters Responsible Business USA Summit gathered the leaders responsible for guiding their organizations’ progress towards a more sustainable future. Professionals charged with the development of sustainability strategies discussed the hot topics of emerging disclosure rules, compliant reporting, and balancing sustainability and growth by creating solid business cases and re-aligning their organizations. To capture and reshare the momentum from the event, I wanted to compile a recap of the key topics on the minds of sustainability leaders to invite you all to be a part of this discussion…because sustainability is a team sport!
1. Climate reporting is the new financial reporting
In the same way that we have seen financial reporting get standardized across jurisdictions and be made workable for multinational companies with dozens of entities, climate disclosure reporting is likely to follow suit. Leaders are putting the necessary infrastructure in place for this already by forming board-level governance structures, mapping out climate and sustainability risks in their business (materiality), and identifying opportunities for long-term resilience using the best available supplier-specific data.
Just like financial reporting, climate reporting will need a consistent information basis offering clarity where the data used in reporting comes from, how it gets verified, and what controls are in place to ensure it stays up-to-date, along with all the calculations it powers.
The expectations of transparency and explainability span beyond the data provenance itself. There is a clear emerging requirement for transparent and repeatable quantification methodologies. As climate disclosures come into force, and businesses build up their reporting muscles, the need for repeatability will become more and more pronounced, as this work is not a one-off process, but part of the new way of doing business.
2. Materiality as a cornerstone of the business case
Many companies have undertaken materiality assessments, and possibly many more have them as a “work in progress.” The primary reasoning to undertake these assessments usually comes from a need to provide CDP disclosures, and materiality is a key part of the process. [If you are curious to learn more about CDP disclosures and setting Science Based Targets (SBTis), please check out the 3-part blog series that starts here.
Materiality, however, is the concept that is key to business operations, allowing companies to prioritize the areas where there are key risks and opportunities with main suppliers, sourcing locations, and key purchased goods. Most business leaders usually can name their key “material” categories off the top of their head, but how often do we use this knowledge to drive home the business case for sustainable investing? It seems clear that if we do not invest in assuring a perpetual supply, or mitigating key supply shed risks through promoting climate change mitigation and adaptation, eventually the businesses’ key processes will be disrupted and they will not be able to fulfill their function of generating products, and with them, any returns to shareholders.
It is time for us to see these risks as opportunities; investing in these de-risking opportunities means gaining a business advantage, a preferred supplier status, and a greater share of attention in the minds of the consumers. All these benefits are very tangible financially, and have the numbers to back the business case behind them.
Going beyond the understanding of key material suppliers and materials for the business, the leaders are looking to expand their assessments into double materiality, which covers not just the issues that affect the company (primary, conventional meaning of the materiality concept in disclosures), but also those ESG issues that are affected by the company. Whilst the reporting frameworks that incorporate the concept of double materiality (e.g., CSRD), result in lengthier reports than frameworks that don’t incorporate it (e.g., SASB), it is well worth going for a ‘longer version,’ as in the long run this works needs to be done, and it is designed to offer companies additional clarity around investments that are beneficial to both the planet and the businesses, helping them achieve their Net-Zero / emissions reduction goals.
3. Investing in systems to carry us into the resilient future
To meet the need for transparency, repeatability and scalability in our climate work (not just reporting, but reducing emissions too!), sustainability leaders from all industries speak about the importance of partnerships with third-party technology platform providers.
Here are some helpful questions that were shared at the Reuters event for those selecting a platform:
- Will this technology or platform help us execute on our sustainability strategy?
- Will it carry us from the near-term (baselining our environmental impact) to the long-term (helping us make decisions to mitigate that impact)?
- Does the technology make your report more transparent and cheaper to audit?
To be able to produce consistent, or at least retrospectively comparable reports on an annual basis, corporate sustainability teams are investing in technology solutions to develop a “single source of truth” for their data and calculation methods. Especially helpful is the ability to generate reports in a way that is compliant with the requirements from the rising number of reporting standards. As a reflection of a plethora of standards and the growing burden of reporting, there is increasing conversation about the need for standards interoperability, or harmonization. Luckily, there is movement towards the consolidation of the standards (see graphic below) that promises some ease of the cross-standard juggling, and it should be coming into effect in June 2023.
From the increased need for governance, the grounding in materiality, and the opportunity to select a glide path towards Net-Zero by leveraging modern data-driven platforms, the space of climate reporting is maturing! Later this year, and in the years to come, following the steps like the adoption of CSRD by the European Commission, we will no doubt see many of the proposed guidances become requirements. Through proactive preparedness, and engaged response from the business community, the standards will become a way for businesses to not only differentiate, but most importantly, transition to the new norm of doing responsible business that operates within the planetary boundaries.
Read more insights here, and see where you can catch Regrow next.