Why Your Company Needs a Sustainability Report, and Six Steps to Get Started

In 1993, when KPMG first released its Survey of Sustainability Reporting, only 12 percent of major companies had issued dedicated reports about their environmental and social responsibility efforts. By 2020, KPMG found that 80 percent of industry-leading companies worldwide (90 percent in North America) had issued sustainability reports, voluntarily communicating their progress in reducing carbon emissions, conserving natural resources, and improving communities. Today, the practice is nearly universal among the world’s largest organizations, as these issues are front-and-center in the public consciousness.

But that’s not the whole story. There are still thousands of small- to mid-size companies – public and private – that have yet to issue a formal sustainability report. It could be that they’ve found it unnecessary, as they’ve managed to avoid the intense scrutiny that stakeholders direct toward larger organizations. Or perhaps they lack the resources required to conduct the required research and pull together a credible report. Whatever the reason for their inaction, the grace period for sustainability reporting is quickly coming to an end.

On one hand, companies that remain silent risk falling out of favor with investors, customers, employees, and other stakeholders who increasingly demand that companies make sustainability a top priority. They also risk falling behind their peers who are already reporting and missing out on opportunities to differentiate themselves as a forward-thinking leader. On the other hand, more stringent government regulations on sustainability reporting are imminent. In fact, the Securities and Exchange Commission (SEC) is has proposed a new rule to require public companies to disclose greenhouse gas emissions and climate-related risks and affected companies could in turn place similar demands on organizations with which they do business.

Simply put, preparing an annual sustainability report is no longer just a gesture of good faith; it’s becoming a business imperative. The question companies should be asking is not “should we do it?” but rather, “how soon?”

For companies getting started on their first formal sustainability report, here are six recommendations to help guide the process.

1. Be proactive. It’s only a matter of time until sustainability reporting becomes obligatory for almost all companies, whether it’s required by law or market forces. For example, retail giant Target is now requiring its suppliers to issue reports in accordance with CDP, a leading environmental disclosure framework. Other large companies are keeping tabs on social responsibility throughout their value chains using methods such as the Sedex Members Ethical Trade Audit (SMETA). Companies that begin to work toward these goals with the intent of reporting their progress publicly will be much better prepared (i.e., less overwhelmed) when they find that it’s no longer voluntary. Businesses in this situation would be wise to start with a trial run of sorts, an initial sustainability reporting effort that is limited in scope and depth. This is a relatively easy way to send a message to stakeholders that the company is serious about sustainability, while laying the foundation on which to build a more robust reporting framework over time.

2. Address a broad audience. It’s important to recognize that a wide spectrum of stakeholders take an interest in the company’s sustainability efforts. This includes regulatory agencies, local governments, investors (whether stockholders or private investors), business customers and partners, consumers, NGOs, current employees, and potential new hires. Thus, a sustainability report should be about more than meeting the required minimum disclosures. It’s an opportunity to speak to these groups in a way that builds confidence and trust. In doing so, companies can positively impact their sales, business relationships, and employee hiring and retention.

3. Understand and move toward reporting standards. Even if your company isn’t ready to compile a public report, it’s a good idea to begin researching the appropriate sustainability measurements and standards for your industry. For example, conduct a materiality assessment, which will help the organization determine which sustainability issues matter most to the company and its customers. Again, even private companies should assess their ability to meet public company reporting requirements, because major customers might impose the same rules on their suppliers.

4. Know that ‘carbon is king.’ There are many ways to measure sustainability, but none matters more than greenhouse gas emissions, specifically carbon dioxide (CO2). Carbon is the most widely recognized contributor to climate change, and thus the most highly scrutinized factor by environmentalists. A logical starting point in compiling a sustainability report would be to conduct a carbon inventory, a complete listing of the company’s emission sources and associated emissions that arise from its business. Focus first on Scope 1 emissions (directly from company facilities and operations) and Scope 2 (indirect emissions from purchased energy). Begin to look into Scope 3 emissions (associated with other company’s activities) with an eye on further developing ESG efforts in the future.

5. Focus on organizational development. Preparing an accurate and meaningful sustainability report takes the coordination and commitment of many people. To be successful, those involved with the data gathering and reporting need to have complete buy in and support from the C-Suite. This is critical to ensuring that everyone at the corporate level is aligned with the same sustainability goals. This includes getting a sense of the most relevant business functions and teams that need to be involved in sustainability initiatives. That will likely include key personnel in operations, procurement, facilities, and other departments. Once this is done, a company can develop processes for data collection and governance and begin to establish structural components such as a steering committee and an executive leadership board. While it’s not necessary to have all the pieces in place to issue the first sustainability report, the organization should at least have a plan to improve the process over time.

6. Keep it real. Remember that a sustainability report should not be a sugar-coated fluff piece. To be credible, it should be an honest assessment of the company’s successes, balanced with the acknowledgement that there is room for improvement. It’s an opportunity to share with stakeholders not only what’s working well today, but also share a longer-term vision and set aspirational targets. Reporting completely and transparently is the best way to enhance relationships with stakeholders and enlist their partnership in a shared sustainability journey.

Need help getting started? Contact SCS Consulting Services for more information about sustainability reporting and strategy solutions.

Source: https://assets.kpmg/content/dam/kpmg/xx/pdf/2020/11/the-time-has-come.pdf