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Driving value from sustainability reporting

05 May 2023

Driving value from sustainability reporting

With international baseline sustainability disclosure standards due to be released later in the year, many organisations are getting ready to formally report on sustainability and ESG performance for the first time. Combine this with rapidly increasing expectations from investors and other stakeholders, and reporting is only going to get more sophisticated.

However, reporting for reporting’s sake means companies may miss out on the significant value that can be gained from the process, namely board education, ESG strategy setting, exposing materiality insights for strategic gain, and generating engaging communications that can be leveraged with investors, customers and other key stakeholders.

So how can executive leaders and directors ensure they’re driving value from their reporting materials after all the materiality assessments, data collection and engagement is complete?

Whether a seasoned adopter or new to the process, we provide a few tips to help move your next sustainability disclosure beyond the perception of glossy greenwash, and towards being a catalyst for genuine change and growth.

Use materiality to inform strategy

Is your materiality leveraged for strategy, or just reporting?

Material topics are the blueprint for quality sustainability reporting and pinpoint the key environmental, social and governance topics that a company’s most influential stakeholders are focused on.

To map materiality according to priority, each of the stakeholders - whether investors, financiers, communities, employees, regulators or governments – identifies a) which ESG topics have the potential to impact the organisation over time, and b) which topics are important to them and their agenda.

Materiality may change each year with growth - and differs significantly across industries and geographies - so this process should be underpinned by a thorough stakeholder engagement process, especially as maturity grows.

However, while a shiny materiality matrix may often be considered the end goal, what is often missed is that the materiality assessment process offers a valuable set of deep insights that should be used to inform overall strategic direction and priorities. It’s also an opportunity to revisit company purpose, vision and values through the lens of materiality and ensure that the company is clearly articulating its value to stakeholders through every channel.

A focus on materiality in the annual strategic planning process can:

  • help prioritise and allocate resourcing;
  • ensure risk-aligned decision-making;
  • identify shareholder trends that may contribute to long-term value creation;
  • drive innovation and sustainability target setting at a Board level; and
  • expand company KPIs beyond the traditional financial and operational metrics.

More broadly, a focus on ESG and sustainability outcomes is linked to material financial impact. This includes better access to capital, improved market share, opportunities to enter new markets, and greater access to talent. In short, sustainability strategy will soon be on equal footing with company strategy so best to get started now.

Amplify your progress to improve stakeholder engagement

There’s a been a trend in recent months towards “green-hushing” – or a reluctance from companies to talk about the work they’re doing towards building a better, cleaner and more socially inclusive world – at risk of being criticised for what they’re not doing.

While this hesitation may be justified with the rise of “green-washing,” it’s important companies continue to communicate the progress they’re making against sustainability metrics and not fall silent on the topics that key stakeholders are listening for. If companies fail to adequately shape their ESG narrative in terms of the value proposition when disclosing their data, analysts and other shareholders may make assumptions – and often the wrong ones. 

Using the key data points, insights and infographics contained in the sustainability report across other stakeholder channels helps to demonstrate the nuts and bolts that underpin the purpose and value chain narratives, while embedding the sustainability agenda and buy-in more broadly. When coupled with a robust design process, these assets can bring greater credibility to investor packs, client tenders, finance proposals, marketing and social media campaigns, community consultation materials and grant submissions.

And this also includes being open about the challenges facing the organisation and shedding light on the reasons behind the lack of progress across key indicators. Creating a culture of transparency and accountability helps build trust, engagement and credibility with internal and external stakeholders, while demonstrating a commitment to long-term impacts over short-term performance.

Prioritise the ‘G’ to drive better ‘S’ and ‘E’

Who is leading sustainability within the organisation? Hint: the answer should not be the Chief Sustainability Officer alone.

As the convergence of global reporting standards, frameworks and associations continues to gather momentum, ensuring organisations have robust governance in place to maintain integrity across the entire spectrum will be key.

Investors are no longer interested in sustainability reports with aspirational statements and cherry-picked data, they’re asking companies to demonstrate how ESG is embedded into their leadership structure and day-to-day operations. Which is where the ‘G’ comes in.

A robust ESG governance structure starts at the top and involves curating a framework that permeates all levels of the company. This usually involves a set of dedicated policies and risk frameworks to underpin the top-line approach, supported by an ESG lead on the Board that feeds into a sustainability steering committee to strategise, deliver and drive engagement across the organisation in tandem with regional leads.

Plus, in addition to being primed to respond to the nuanced queries from analysts and investors, having effective governance and board oversight of ESG has recently been shown to be critical for advancing sustainability outcomes and long term success.

So, the real question now facing directors and executive teams is: why have a sustainability report if it’s not creating business value and driving better outcomes for your stakeholders, people and the future of the planet? It may not be easy or quick, but the goal is well within reach.

Morrow Sodali provides bespoke Environmental, Social and Governance (ESG) Advisory and Consulting Services to help companies manage shareholders’ expectations on ESG risks, opportunities and disclosures. Our Governance and Sustainability team provides end-to-end consulting services for sustainability and ESG reporting, including external ESG landscape reviews and company health checks, materiality mapping, shareholder influence analysis, alignment to reporting frameworks, modern slavery support, stakeholder engagement, and report writing.

If you would like to learn more about our services, you can request a call with our team by clicking here.

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