Sustainability reporting frameworks lack comparability to attract investment, say experts

EXCLUSIVE: Sustainability reporting frameworks should be developed to encourage businesses to compete on performance and attract investors rather than simply being used as compliance mechanisms, a panel of experts have agreed.

The World Business Council for Sustainable Development (WBCSD), construction firm Carillion, carmaker Jaguar Land Rover (JLR), and banking firm Barclays were discussing the future of sustainability reporting at edie’s Smarter Sustainability Reporting Conference in London on Wednesday (1 March).

The speakers agreed in their panel discussion that a growing interest in climate risks from the financial sector is changing how companies use their sustainability reports. They implored other businesses to separate their data and stories in their reports, in order to appeal to a variety of stakeholders.

WBCSD consists of 200 forward-thinking global companies committed to advancing the sustainability agenda, and has recently launched the beta phase of its Reporting Exchange initiative. The collaborative programme is currently operational across 40 countries and gives companies insights into national and regional requirements for reporting, aside from the usual frameworks such as GRI.

At the Conference, the Council’s managing director for redefining value and education Rodney Irwin said that companies need to realise that reporting should be viewed as the “legal duty to disclose”, while sharing the stories of the report should be withheld from investors more interested in the data.

“We are at a point where sustainability reporting is starting to become mainstream,” Irwin said. “We now have something with a bit more teeth in terms of its pedigree. But sustainability reporting as an umbrella term still mixes up reporting and communication to the extent that it becomes all things to all people and nothing to anyone.

“Investors don’t want stories, they want numbers and they want to see those numbers progress year-on-year. Finance directors are usually the same. When it comes to communicating or reporting – and I do believe there is a distinction between the two – we need to be making sure that you’re providing relevant information for the right stakeholders.”

Monetary measurements

Last year, construction giant Carillion revealed that sustainability practices had generated more than £30m in savings for the company. At Wednesday’s Conference, the firm’s chief sustainability officer David Picton claimed that, in a “world of spin and fake news”, it is vital that a sustainability report has transparency and balance in order to act as “a beacon of trust” for businesses.

Carillion’s ability to monetise its sustainability impact is one area where the other delegates were hoping for improvement on a global scale. The representatives from JLR and Barclays at the Conference both suggested that an impact measurement framework where companies could place financial figures against their impact could provide greater insight for potential investors.

Investor interest into climate disclosure and sustainability reporting has intensified due to the formation of the Task Force on Climate-related Financial Disclosures (TCFD). The organisation recently urged businesses to voluntarily disclose climate-related information under traditional financial filings. The Task Force is the first global, industry-led effort to publish recommendations for climate-related financial disclosures and has acted as a catalyst to bridge communications between companies and investors.

One such investor that is already backing sustainability projects is Barclays. The bank raised £21.1bn in finance for environmental and societal schemes in 2016 and its assistant vice president for citizenship and reputation Svetlana Nikolaenko claimed that if the finance sector agrees to mandatory climate reporting, others will have to follow.

“The Paris Agreement has got the financial sector talking about climate-related risks, and it is a complete breakthrough for the industry,” Nikolaenko said. “In July, the Task Force recommendations will give us feedback and once the financial industry starts reporting, eventually other industries will follow. An impact measurement framework would give us the comparability to examine companies.”

Current and voluntary reporting standards create the possibility that companies would operate under a “tick-box system for external gratification” that failed to truly present the benefits of a firm’s sustainability actions and its actual report, the panel agreed. To overcome this scenario, the panel agreed that financial measurements could act as a bridge between the data and the story of a sustainability report.

JLR is investing £36m over the next three years into energy management schemes and the company’s head of environment and sustainability Fran Leedham believes a monetary value should be placed against the impact of sustainability initiatives, so that investors have an accurate way to compare projects and portfolios.

“There is a risk that sustainability becomes just a story and that the facts disappear,” Leedham said. “We’ve had fact-based reports in the past that are impossible to absorb, so we’ve been very clear on who the audience is so the investors can have the analytics, the data and the clarity and the consumers can gain an understanding of the face of the company and the high-level stories.

“I think, in the future, we’ll need to get a common currency against all of our impacts to help translate what the reports mean and put a financial value against it. It could greatly help in getting better and more comparable reports which will allow investors to create views on our business practices.”

Matt Mace

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