Sustainability Report: ESG and Transparency

Sustainability reporting is a powerful tool for communication and accountability, especially when we think in the context of ESG.

In this article, we’ll explore what sustainability reports are, why companies should do them, the benefits involved, the challenges that can arise, current trends and existing norms and standards.

What is a Sustainability Report?

A sustainability report is a document in which companies communicate detailed information about their actions, practices, programs and impact performance, mainly in relation to their environmental, social and governance (ESG) areas.

It describes the organization’s environmental, social and economic impacts, as well as the measures adopted to minimize or enhance these impacts. The reports generally include information on the results achieved, challenges faced and future commitments.

Why should companies do Sustainability Reports?

There are several reasons why companies should invest in sustainability reporting:

1. Transparency and Accountability: Sustainability reports allow companies to be transparent with their stakeholders, demonstrating their ESG commitments and providing clear information on their performance in this area. This strengthens the company’s trust and credibility with customers, investors, employees and the community.
2. Risk management: Sustainability reporting helps companies identify and manage the risks associated with their business practices. This includes risks related to processes, laws and reputation. By monitoring and communicating these risks, companies can take proactive measures to mitigate them.
3. Competitive advantage: Companies that adopt sustainable practices and communicate these actions through reports can gain a competitive advantage. Many consumers are increasingly concerned about the environmental and social impact of companies and are looking for sustainable products and services. In addition, investors and business partners are more inclined to do business with organizations that demonstrate a commitment to sustainability.

Benefits of Sustainability Reports

Sustainability reports offer a number of benefits for companies, including:

1. Improved performance: By measuring, monitoring and communicating their ESG performance, companies can identify areas in need of improvement and set targets to drive their progress. This encourages innovation and the adoption of even more sustainable practices.
2. Stakeholder engagement: Sustainability reports are an effective tool for involving stakeholders in company processes. As well as promoting listening with stakeholders, they allow stakeholders to better understand the company’s commitment and achievements, so they can offer feedback and support.
3. Cost reduction: Sustainability often leads to more efficient practices and the reduction of waste, resulting in resource savings and cost savings. Reporting can identify areas where the company can improve its efficiency and reduce its negative impact, resulting in significant financial savings.

Challenges in Sustainability Reporting

Although sustainability reports are valuable, they also present challenges for companies:

1. Data collection and management: Collecting and managing accurate and relevant data can be a challenge for companies, especially those with complex operations and extensive chains. For a sustainability report to fulfill its role, it is necessary to implement effective systems for collecting, tracking and reporting data.
2. Measuring impact: Measuring a company’s social and environmental impact can be complex and involve multiple indicators. It is therefore necessary to identify metrics and methodologies to measure and communicate these impacts in an accurate and comparable way over time.
3. Effective communication: Sustainability reporting requires effective communication skills to ensure that the information is understood and valued by stakeholders. It is important to avoid technical jargon and use clear, accessible language.

Trends in Sustainability Reporting

The evolution of sustainability reporting keeps pace with trends and changes in the business landscape and stakeholder expectations. Some current trends include:

1. Integrated reporting: Previously known as Annual Reports, companies are adopting a more comprehensive approach, combining financial and non-financial information into a single integrated report that provides a holistic view of the organization’s performance.
2. Focus on relevant themes: Sustainability reports are increasingly focused on specific themes relevant to the sector in which the company operates, such as climate change, water and energy footprint management, human rights, gender equality and many others.
3. Positive impact reports: Some companies are expanding their sustainability reports to include not only the minimization of negative impacts, but also the creation of positive impacts, such as job creation, the promotion of social equality, the protection of biodiversity and others.

Norms and Standards in Sustainability Reporting

There are several norms and standards available to guide companies in preparing sustainability reports. Some of the most recognized include:

1. Global Reporting Initiative (GRI) is the leading global standard setter for sustainability reporting that addresses an organization’s impact on the environment, society and the economy for stakeholders. The GRI Standards are widely adopted by companies around the world.
2. Carbon Disclosure Project (CDP) is an international non-profit organization that manages the global environmental disclosure system. This reporting format is considered the gold standard of environmental reporting, with the richest and most comprehensive set of data on companies’ and municipalities’ actions related to the environment.
3. Value Reporting Foundation (VRF) is a global non-profit organization, formed by the merger of the International Integrated Reporting Council (IIRC) and the Sustainability Accounting Standards Board (SASB), offering a comprehensive set of resources to help companies and investors develop a shared understanding of corporate value. The VRF Standard has 3 different tools that a company can follow to meet the demands of the capital markets and to be transparent and generate value for stakeholders.
4. Stakeholder Capitalism Metrics (SCM) is a project launched by the International Business Council (IBC) of the World Economic Forum (WEF) in collaboration with the world’s four largest accounting firms, Deloitte, Ernst & Young (EY), KPMG and PwC. Its aim is to improve how companies measure and demonstrate their contributions to creating more prosperous and fulfilled societies and a more sustainable relationship with our planet. The project defines a core set of metrics based on the Stakeholder Capitalism Metrics and disclosures that can be used by companies to align their performance reporting against environmental, social and governance (ESG) indicators and track their contributions to the Sustainable Development Goals (SDGs) on a consistent basis.
5. Free Standard: Although recommended, a company is not always willing or mature enough to follow a sustainability reporting standard like the ones presented above. But this should not be an impediment to creating one. Understanding this reality, there is the option for the company to produce the report in a free format, i.e. it does not follow any specific methodology, but continues to address the actions, practices, programs and impact performance generated by companies.

Sustainability reports play a crucial role in communicating and accounting for companies’ ESG practices. They provide a transparent view of the organization’s performance, engage stakeholders and contribute to informed decision-making. Although they present challenges, the benefits of investing in sustainability reporting are significant, providing a competitive advantage and a path to a more sustainable economy.

If you need help building your report, get in touch with our team.