In a time where sustainability has become key to the majority of financial companies’ operations, understanding sustainability reporting has become key.
In a recent post by Diligent, the company outlined the significance of this form of reporting and why it is so important in the modern world.
Sustainability reporting is a type of reporting in which companies analyse, measure and report on their progress toward pre-determined sustainability goals.
Diligent said, “Companies need sustainability reporting procedures that offer complete transparency into their environmental impact to meet consumer and shareholder expectations. Effective sustainability reports should include environmental risks and opportunities, their costs, and how they align with the company’s CSR goals.”
Why does sustainability reporting matter? According to Diligent, this form of reporting matters because it can have significant financial ramifications. Almost half of investors have decided not to invest in a company because they lacked a clear stance on social and environmental issues, while another 38% have sold shares for that same reason.
Diligent continued, “Sustainability reporting is an opportunity to reassure consumers and shareholders and chart a path forward that accounts for environment-related risks and opportunities. Companies that regularly report on their sustainability can proactively mitigate ESG risks, cut costs and ultimately bolster performance.”
A key link with this kind of reporting is ESG, especially the E (environmental) part. Diligent explained that ESG sustainability reports are an important way that companies can fulfill ESG requirements. To do so, companies should include how their progress stacks up against any benchmarks and goals they already have in place.
CSR, or corporate social responsibility, is another powerful motivator for this form of reporting. 70% of American consumers said they expect companies to make the world better, while 73% of investors say that a company’s environmental efforts impact their investment decisions.
Diligent said, “While CSR isn’t the only reason to report on sustainability, it’s a powerful reason why companies should be transparent about their environmental impact and motivated to improve year over year.”
What should a sustainability report involve? In the eyes of Diligent, some of the most important aspects are the businesses’ ESG goals, the progress the company has made toward those goals, the risks the company may face, opportunities the company may have and financial details, such as potential costs associated with the goals, risks and opportunities.
To date, there are more than 600 different reporting standards – despite the fact many governments and firms are pushing to centralise their reports.
There are many types of reports, but they usually follow a specific standard that the company selects. Some examples include the EU Corporate Sustainability Reporting Directive, the Task Force on Climate-Related Financial Disclosures, Global Reporting Initiative, the CDP and the IFRS Sustainability Disclosure Standards.
Diligent concluded, “ESG goals set the stage for sustainability reporting. They are the goalpost for all metrics, risks, and opportunities a sustainability report will include. A company’s ESG goals will help sustainability efforts shine if set strategically. ESG goals can set a company up for big financial and reputational losses if chosen poorly.”
Read the full post here.
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