TCFD, SDGs and pop-up squads: What the future holds for sustainability reporting

Sustainability and corporate responsibility managers from a range of businesses recently gathered in London for an exclusive roundtable hosted by edie and reporting and assurance firm DNV GL to discuss how new standards, systems and stakeholder demands are together revolutionising sustainability reporting.

Delegates discussed the key drivers that would impact sustainability reporting in the near future

Delegates discussed the key drivers that would impact sustainability reporting in the near future

In its ideal form, a sustainability report is the written gospel of company’s values, goals and efforts across a range of key environmental and social factors. And in the era of the Sustainable Development Goals (SDGs), translating such a wide array of values and goals into a single, informative and engaging document is becoming something of an art.

At a recent edie roundtable event in London, 14 sustainability and corporate responsibility experts discussed the best paths to take when publishing a sustainability report and what the future holds as large global frameworks begin embedding themselves into corporate actions.

Here, edie rounds up five key trends that are shaping the future of sustainability reporting:

Integrated Reporting and pop-up squads

A transition is already well underway in the way businesses report their sustainability progress. Standalone reports are beginning to be replaced with integrated reporting, a move the reflects the growing necessity of embedding sustainability across different functions of the business.

There has been notable growth in the number of companies reporting on sustainability, but as it becomes a 'business-as-usual' approach, the chances of it becoming a tick-box exercise also increase. Integrated reporting is designed to stop that from happening; allowing businesses to embed sustainability as a cross-functional reporting exercise.

Roundtable participants noted that some reporting was less ‘integrated’ and more ‘combined’ in this regard, but on the whole, if businesses can get integrated reporting right, it can generate some noteworthy internal benefits.

As property developer The Crown Estate’s deputy head of sustainability Jane Baptist explained: “The point of an integrated report is to demonstrate the integrated thinking of the business. It's very helpful internally... by encapsulating the business into key areas, it really makes the business think about what is influencing it... it really focuses the mind.

“People can see how what they're doing feeds into a strategic objective and the capitals. It motivates people and over time it all feeds back into the financial part through brand performance. Everybody is working together on this.”

The Crown Estate has been using an integrated reporting framework for around six years and, although Baptist notes that the actual reporting process can be hard to achieve, the method has helped to harmonise internal workings around sustainability.

Some roundtable attendees argued that integrated reporting can be far less emotive, and arguably less interesting, than its standalone counterpart, and that it can neglect the ‘storytelling’ aspect of reports which we know to be so powerful. The process of embedding a true ‘sustainability-first’ mindset across other departments – like finance – is also as challenging as it is desirable.

However, construction services firm ISG’s head of sustainability Gemma McKenzie suggested that integrated reporting is, in fact, a storytelling opportunity itself. McKenzie noted that it explains how performance isn’t “reported in a silo”, instead showcasing that departments are “all inter-connected and all driving towards the creation of value beyond profit”.

One notable way to smooth the transition to integrated reporting was highlighted by banking firm ING’s sustainability advisor Radoslav Georgiev, who revealed to fellow roundtable participants that ING now implements a “pop-up squad” that appears during the reporting phase, to support its development and release.

“[The pop-up squad] brings together people from different functions in one team working on one project,” Georgiev said. “It has really helped the integration process... we want the different functions to work towards one focused project. Having agile ‘squads’ removes a layer of management and enables decision-making... it has helped to bring all these functions into one area.”

The SDGs and a new target-setting opportunity

The business case for embracing the SDGs has already been discussed in-depth at another edie roundtable, but when looked at through the lens of sustainability reporting, the Goals have their uses and their drawbacks.

DNV GL released findings of a major global survey earlier this year, which explored business attitudes towards the SDGs. Developed in partnership with the World Business Council for Sustainable Development (WBCSD), that survey of around 250 companies across 43 countries and four continents discovered that more than three-quarters (78%) had undertaken efforts to identify priority SDGs. However, the survey went on to reveal that just 44% of companies had analysed the links between the Goals and their own corporate strategies, while only four in 10 had taken the next step of integrating the SDGs into a strategy. Roundtable particpants had noticed similar cases of a lack of integrated engagement with the goals.

Indeed, Provident Financial Group’s Rob Lawson noted the that there was “no shortage of companies that have plastered the SDGs over their reports” but questioned whether firms were actually contributing to the macro-goals. Lawson suggested that the broad scope of the Goals gave business an opportunity to “demonstrate purpose”, and the rest of the roundtable was in agreement that the real business opportunities for using the SDGs would come when a corporate was in a position to announce new sustainability strategies using the Goals as the primary driver.

“We're looking at reporting through the lens of the SDGs in terms of what focus areas and targets and what will support the communication process,” transportation company First Group’s director of corporate responsibility Frances Fay said. “It will make it much more integral to our reporting and will have a credibility behind it that we're not just putting a badge on it and we've actually built it in from the very beginning. If you've already got a strategy in place, it becomes a lot more difficult to embed.”

Carbon emissions, waste management, water usage and gender diversity are all outlined in-depth in  First Group’s sustainability report. While the Group is using internal discussions over a new strategy as a vehicle to embed the SDGs, other participants noted that using the SDG framework over existing strategies can generate some inconsistencies.

The real potential of the Global Goals, according to the roundtable, is in shifting the business mindset from short-term targets to long-term ambitions. Education firm Pearson’s head of corporate responsibility Peter Hughes added: “What was most useful for us was using the targets underneath the SDGs and to engage the strategy team and how can we stretch ourselves... it was a great opportunity to make sure the business strategy was driving in the right direction.”

 

The Task Force on Climate-related Financial Disclosures (TCFD)

In the grand scheme of things, the SDGs are more midpoint markers than an end-goal or destination. The TCFD, on the other hand, calls on corporates to envision business performance through to 2050, for example, as part of an overhaul to traditional reporting methods.

Roundtable delegates noted that investors are now seeking information on the SDGs as part of the ongoing portfolio examination that is slowly gripping the sector. The TCFD recommendations, however, are driving a whole different level of financial engagement with climate-related strategies.

DIY retailer Kingfisher’s head of sustainability Caroline Laurie noted that external stakeholders were enquiring more frequently as to how the home product retailer plans to fulfil the TCFD requirements, but that the process was “quite difficult”. ING’s Georgiev also suggested that the recommendations would streamline a transition to integrated reporting as companies would have to file non-financial data alongside financials in annual reports.

Carrie Harris, sustainability manager at airline operator International Airlines Group (IAG), revealed that her business has now mapped its business performance against the TCFD’s scenario analysis – which encourages businesses to explore uncertainty to create a “well-established method for developing strategic plans that are more flexible or robust to a range of future states”.

“We've already had years of strategy, future implementation and future goals set out to 2050 on our climate change programme,” Harris explained. “The detailed guidance of the TCFD is so helpful for a step-by-step process. It brought together people from across our business and pushes people to think long-term, we're asking them to look 12-25 years ahead. It was completely new to a lot of people.

“Because it's come from the investor community and driven from a financial perspective, again, its driving integration across the company, it's brilliant for us.”

IAG isn’t yet in a position to publicly share all the findings from the TCFD analysis, and Harris did also note that disclosure can become challenging. Harris cited disclosing a request for details from CDP on the conclusions of scenario analysis, which can be commercially sensitive.

Human rights, transparency, and a zero-tolerance approach

Transparency was viewed as a pivotal driver for presenting sustainability as a boardroom interest, among the roundtable participants. Kingfisher’s Laurie claimed that some legislative enforcement through aspects such as the Gender Pay Gap and the Modern Slavery Act had acted as a “godsend” for the company, and other participants were in agreement that legislation on these social aspects had raised awareness within the business, which in turn encouraged firms to act.

“I think there's a move to more humble, honest rhetoric which is quite defensible,” Laurie added. “Companies know they haven’t got all the answers, but they have an intent to get to the right place; transparency should be the overriding principle.”

Luxury fashion brand Burberry was noted for its “self-inflicted” pain caused by voluntarily disclosing how much produce it burns – in this case, almost £30m – to protect the brand from issues such as counterfeiting. What should be noted about this example is that it is widely believed that many other businesses in the fashion industry regularly burn unsold stock, but Burberry’s transparency led to a lot of media backlash on itself. But the decision to publish the data and brace for some initial backlash has led to the company pledging to stop the practice – a case in point of transparency driving improvement.

As its name suggests, Multiplex Construction Europe is a business that has a vast supply chain spanning numerous countries. The construction company’s sustainability director Eva Gkenakou claimed at the roundtable that legislation such as the Modern Slavery Act had helped to “shine a light” on human rights issues and has helped make business “self-aware” of issues.

Multiplex’s own self-awareness on the issue is evident. A Modern Slavery statement has been accompanied by a Charter that “reinforces Multiplex’s zero tolerance to all forms of slavery and human trafficking” within the supply chain.

Some still debate what role enforcement should play when publishing Modern Slavery statements, but the hospitality sector stands out as one where the Act has led to industry-wide collaboration. Hilton Worldwide’s senior manager of corporate responsibility Claire Whitely highlighted the Shiva Foundation – a collective with an annual turnover of more than £14bn – as a best-practice example of human rights collaboration.

Emotive, bite-sized and nerd-friendly

As well as enabling companies to become more self-aware on certain sustainability issues, transparency is also driving external awareness on a company’s performance. Capgemini’s global head of corporate sustainability James Robey noted that the University of Oxford’s business school was able to construct an integrated report for ExxonMobil by using artificial intelligence (AI) to comb through publicly available data shared by the oil and gas giant.

In the near future, Robey predicts that reporting will become more integrated, but will be supported by freely available databases of relevant disclosed information.

“There will be fewer standalone reports as it gets more integrated, but maybe they should be supplemented by the specific reports and webpages on stories which are more stakeholder focused,” Robey told the rest of the roundtable. “Then, the data just crunched and available on the website for anyone who really wants the data.”

With subjects such as climate change, resource efficiency and business ethics becoming mainstream topics, it is clear the private sector will have a bigger audience with more diverse demands. Roundtable delegates agreed that, for the near-future at least, reporting would likely need to be presented as a cocktail of data-driven progress and emotive, purpose-led stories.

Provident Financial Group’s Lawson went as far as to suggest that some businesses should consider creating a “nerd’s corner” on their website, enabling stakeholders to comb through any relevant data as they wish, with reporting used to share more purpose-driven information and progress.

However, Asia Pulp & Paper’s European director of sustainability and stakeholder outreach Liz Wilks warned corporates must be willing to share stories in a transparent way to negate any criticism of greenwash. “There will be key messages that resonate [in a report], but it’s not greenwashing,” Wilks said. “You need to be careful with that because the audience is changing, and the approach is constantly exposed to criticism and feedback.

“It needs to be transparent and bite-sized and almost reaching out to the audience to engage and live it. This is where we need to go down. You’ll need to show warts and all and understand the root causes and learn from the journey.”

It’s clear that there are multiple routes to travel down and even more frameworks to consider when building an engaging sustainability report fit for the future. But, with many corporates focused on the physical report itself, Highways England’s interim executive director and roundtable chair David Picton summarised: “Sustainability reporting is sorting priorities and translating them into actions that underpin cultures, avoid embarrassment and connect to consumers”.

Matt Mace


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