If you were talking about sustainability in your annual report a decade ago you were very much ahead of the curve. As the topic becomes more and more tied in with core business operations, the once rare practice of discussing sustainability in your report is becoming more common place. You can still put actions in place today to stop your company from being left behind.
The reason for the uplift in trend is mainly due to an increase in interest from investors, more mandatory requirements and a general trend of more non-financial information appearing in company reports.
However, just how to fit sustainability into reporting is still problematic with a number of unanswered questions floating around a reporter’s head:
- What information belongs in which report?
- How do you meet the diverse needs of those interested in the report with something concise?
- Is what I’m including even relevant?
At the fourth Anthesis reporting roundtable event in London, reporting professionals from a range of sectors met to share their experiences from the front line. More importantly, they also shared some key rules of thumb, which we have group into five main points to help you talk about sustainability in your company’s annual report.
Keep It Short and Interesting
Research, gathering the data and producing a report can be a costly and time-consuming endeavour. Many internal sustainability teams are stretched and want to use their time taking meaningful action rather than just talking about it.
To combat this and to conserve resources, many long-term reporters are now making their report shorter. There’s a trend towards a reporting library approach where a shorter report gives an overview, the key data, and a short update on progress.
This short report is supported by other materials and web content covering the mandatory and stakeholder requirements, evergreen content and case studies.
The main benefits to the reader of this concise approach is that information is more easily digestible and can be readily found – as long as the supporting content is well signposted. The benefit to the reporter is that communications can be tailored to key audiences. The potential downside is that this is arguably leading to less creative approaches.
Reporters also need to make sure they assess which reporting medium(s) their audiences prefer and target their content accordingly. It’s all very well producing a swish website or e-book, but your audience might prefer a video.
The Beginnings of Integrated Reporting?
With sustainability and non-financial reports becoming more concise and data-driven, whilst annual reports are becoming more narrative based, could we be seeing a merging of the two streams? Is this the moment we embrace Integrated Reporting (IR)?
It sounds logical, but a show of hands around the table found only two of our reporters able to state with confidence that their reports would be fully integrated in the next five years. Why so few? Concerns over IR include views that the framework of the International Integrated Reporting Council doesn’t provide a neat fit with how their business works, and necessarily brief integrated reports not providing the right platform for the level of detail many issue-focused stakeholders expect.
Get Serious About Sustainability Risk
Investor interest in sustainability has been a main factor driving the topic into the business mainstream. This has now also been backed up officially by the TCFD recommendations (Task force on Climate-related Financial Disclosures).
This is giving companies no option but to include sustainability concerns, in particular climate change, in their risk management processes. However, just including sustainability in the process is not enough, particularly if the process itself is not forward-looking enough. If long-term risks are considered to be 2-3 years away, climate risk will never be included, until it is too late of course.
TCFD isn’t just about risks. It also requires companies to identify the opportunities climate change may create, meaning there is a greater possibility in making a business case to take action. There seems to be no doubt that this information is material and business-critical, which leaves the question of whether TCFD requirements should become mandatory.
Be Realistic About Standardised Sustainability Data
From years of practice, financial reporting is a standardised part of business life. The TCFD represents a step towards greater standardisation of climate change reporting. One thing we’d question is the replicability of this standardisation to other areas of sustainability reporting, particularly in the short term.
This begs the question – will investors get frustrated with the lack of standardisation of sustainability data? There is also a challenge here around assurance, with sustainability reports and data not assured to the same degree. Once again sustainability teams are keen to invest limited time and budgets into making meaningful improvements.
Get Finance and Sustainability Teams Working Together
With mandatory requirements, investor queries and initiatives like green bonds, the Finance and Sustainability teams of a business are having to work more closely together – even if they’re not producing a fully integrated report. The key for businesses is getting these two teams to work together effectively.
Some finance teams are now actively engaging with sustainability functions, while some are creating liaison roles which could be key to cooperation. Risk management is a critical meeting point between the functions and a point for investor queries.
Where sustainability fits within the corporate structure can also have an impact on how it engages with the business and wider supply chain. This varies greatly between businesses and has changed over time – some have it under the scope of Environmental Health & Safety, communications, operations and (as with one company around the table) under finance.
Senior management buy-in is essential to this cross-functional working, but it isn’t a silver bullet. Teams still need to find ways to engage and cooperate.
Get Your Story Right, Then Choose the Framework
For companies new to reporting, it was unanimously agreed that the first step is to work out what your focus areas, strategy and action plan are. Then you’ll be able to see which approach to reporting and communications best serves your purpose.
Whichever framework you choose (and there are pros and cons with them all), embedding financial and sustainability reports into a richer online environment of tailored content for key audiences and information in different formats seems to be the future.
Investors and people with other interests in your company want to see the data about past performance, but they also want to understand and evaluate your unique story and road to future success – make sure you showcase this.