A Mindset to put Business Thinking into Sustainability Reporting

A MINDSET TO PUT BUSINESS THINKING INTO SUSTAINABILITY REPORTING

Last week Chronos CEO Dr. Rory Sullivan spoke at the London Stock Exchange Sustainability Reporting  Summit, where delegates discussed the changing landscape for corporate sustainability reporting. In this report of his comments Rory highlights common misconceptions that limit companies’ ability to derive value from sustainability reporting processes.

If you are confusing ESRS with CSRD, tangling up TNFD and TCFD or blurring ISSB and CDP – you are not alone. The sustainability reporting landscape is rapidly transforming as we move from voluntary frameworks to more mandatory disclosure, and as more and more investors and wider stakeholders lodge detailed ESG data requests.

The mindset with which corporates and the wider sustainability community approach this challenge is critical, and too many companies fail to adopt a positive mindset that sees sustainability reporting as a value-creation tool. Rory highlighted three common mindsets that are particularly problematic:

·       The outsource mindset: When companies just want to give reporting lock, stock and barrel to consultants and forget about it. The consequence is that these organisations then see reporting as a pure cost. Inevitably, the benefits of reporting (e.g. using it to trigger a critical review of systems and processes, or to identify opportunities) get lost.

·       The ‘one and done’ mindset: When companies assume that getting the sustainability report done, and meeting a few selected investors, means they don’t need to do more. This neglects the reality that companies’ reports and data are taken and processed by a range of actors and are fed through to investors through a variety of channels. Of particular importance are ESG data providers. Rory’s key piece of advice was to engage constructively with these organisations to check they have the correct data and all the information they need.

·       The divorce mindset: When companies assume that investors and wider stakeholders believe everything they say, and feel no need to properly explain how any commitments they have made have been translated into action.

These mindsets are all limiting in their own way but more so as increasing regulation and compliance demands (such as CSRD or the new SEC climate rules) make it even more likely that companies will manage sustainability reporting as a compliance requirement.

A positive mindset

In this changing reality it is those companies that are willing to learn and find value in the reporting process that are most likely to maximise benefits from their sustainability reporting efforts.

The introduction of new rules is inevitably painful in the short-term. Companies have to strengthen their systems and processes, collect new data, and often change years of reporting practice.  But this is what growing up and professionalising as a sector looks like.

And many of the consequences are positive. As more people get involved in data collection, and more parts of the organisation (such as risk, compliance and investor relations etc) engage in the detail of these data, the greater the degree of organisational buy-in for improving sustainability performance. Most crucially, the fact that this reporting is now a statutory requirement means that senior managers and/or the CEO are now required to sign off on sustainability reports. This generates greater engagement at the top on issues from biodiversity to board diversity.

This maturing of the sector is also helping tackle inconsistent and incomplete reporting. Our Head of Biodiversity and Nature Gemma James recently pointed out how we are seeing this in the consumer staples sector. The Chronos team is supporting Brunel Pension Partnership in an engagement with the sector on physical climate risks and the quality of the climate risk assessments from leaders such as Diageo are impressive in scope – covering over 95% of its operations and supply chain and utilising location data, multiple time horizons and climate scenarios.

Let’s get on with it

Complaints from companies about reporting burden are understandable. But Rory’s most memorable comment, which was referred to by many of the speakers at the conference, was ‘Yes there’s reporting fatigue, but get over it and get on with it!’.

His view is that ultimately the costs and resources for sustainability reporting within large companies are actually quite modest relative to the overall size of these companies.

Rory concluded that, as the sustainability community grapples with new reporting standards, the key is to focus on making that process a valuable part of improving business systems and scanning for opportunities. So less about forcing sustainability thinking into business, and more about putting business thinking into your sustainability approach.

 

Get in touch if we can help your team with sustainability reporting.

Laura Cooper