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Guide your company’s sustainability journey

3

KEY CHALLENGES

3.1

MATERIALITY

ANALYSIS

3.3

Mapping Stakeholder Expectations

3.4

Sustainability Training

3.5

Human rights

3.6

Social Innovation

3.2

EXTERNAL REPORTING

Efficient & Effective Transparency

WHAT IS IT?

WHY IS IT IMPORTANT?

IDEAL SCENARIO

3.2

EXTERNAL REPORTING

RESOURCES FOR
THE JOURNEY

GOOD PRACTICES

WHAT IS IT?

 

We refer to ‘external reporting’ instead of ‘sustainability reporting’ as the ideal situation in the assessment is integrated financial and non-financial reporting combined with strategic communication. We are doing this because the call by the IIRC1  for clear and concise reports encapsulating the triple bottom line value of companies is gaining momentum as the demand from the investment community becomes an important factor in raising the quality of integrated thinking, management and performance.2

 

 

1 The International Integrated Reporting Council published the Framework of Integrated Reporting in December 2013.

2 See also SustainAnalystics: See Change, How Transparency Drives Performance

 

 

WHY IS IT IMPORTANT?

 

Businesses today are valued primarily on financial performance and prospects. However, there is a growing recognition that the true value of a company should reflect both its financial and non-financial performance, as well as future prospects in both spheres.

 

On the one hand, an approach that integrates both financial and non-financial performance and prospects, underpinned by appropriate transparency and disclosure, will enable companies and investors to make informed decisions that are not influenced solely by financial returns. In addition, an integrated report underpinned by a strong culture of integrated thinking and management will also benefit reporting towards other stakeholders.

 

On the other hand, the preparation and year-on-year improvement of a corporate report including non-financial information3 is often the first lever for strategically integrating non-financial thinking and management processes within the organisation, rather than approaching environment, social and governance areas as compliance issues.

 

As Thorsten Pinkepank, Sustainability Director of BASF and board member of CSR Europe put it: “The road leading to the report is often more important than the report itself”.

 

 

 

3 A separate sustainability report prepared according to e.g. the GRI’s standard qualifies as economic indicators are core elements of disclosure.

IDEAL SCENARIO

 

We chose to put the bar high on external reporting by advocating for the preparation of an integrated report and the execution of strategic tailored communication to all stakeholders.

 

Strategic tailored communication to all stakeholders refers to a comprehensive process of:

  • understanding who those stakeholders are (see also challenge 3.3 Mapping stakeholder expectations) and what their communication characteristics and information consumption habits are
  • tailoring information and format to the needs of each stakeholder (deciding on print, online or multimedia content and the most appropriate dissemination channels)

MIA RESULTS

 

It may not be a surprise that most companies in this sample have a separate sustainability report and tailored communication for certain stakeholders. Integrated reporting is still not the norm, but optimist views attest that just as with financial transparency, integrated non-financial and financial disclosure will become an inevitable and strategic exercise in coming decades.

TRENDS

 

We are assessing trends in both sustainability and integrated reporting, considering the former as complementary to the latter.

 

 

LEGAL REQUIREMENTS ON NON-FINANCIAL/SUSTAINABILITY/INTEGRATED REPORTING ON THE RISE

 

Europe is creating a level playing field on non-financial transparency affecting the management of sensitive topics like human rights, corruption and board diversity. This transparency requirement will affect the way companies manage triple-bottom-line issues, as approach to strategy, due diligence and risks have to be explained. The legal measure will affect an estimated 6000 companies in Europe and their first reports are due in 2018. Further information.

 

 

 

REPORTING FRAMEWORKS ENVISION CONCISE REPORTING ON MATERIAL ISSUES

 

  • GRI G4 – the latest guidelines of the Global Reporting Initiative were published in May 2013. The reporting standard is more stringent on reporting only material issues, therefore materiality analysis became one of the most pressing issues for companies serious about their non-financial performance (also see challenge 3.1 Materiality Analysis). Further information.
  • Integrated Reporting Principles – the International Integrated Reporting Council published their framework in December 2013. Integrated reporting is a very important cornerstone between non-financial and financial reporting, which ideally also impacts the thinking and connectivity of these two spheres in the strategy and management of companies. Further information.
  • Conciseness may speak volumes - "Concise reports of a few dozen pages can suffice to render corporate responsibility & managerial process risk factors intelligible" says Vigeo (ESG rating agency) in a survey published in 2015.

 

 

 

INVESTOR INTEREST ON THE RISE BUT NOT COMPLETE

 

  • Institutional and large investors such as the IFC, EBRD are primarily looking at and rewarding integrated reporting. In lot of cases it is not about going into details on indicators, but more a prerequisite to have a sustainability, or even better, an integrated report. (Feedback from MIA workshop – January 2015)
  • Investor-driven initiatives to develop sectorial material topics` listings is on the rise – the Sustainability Accounting Standards Board in the US is developing sectorial material sustainability topics list for companies to be able to report on, compare information and link to investors. In the US, materiality is a legal category, not a management tool, like in the interpretation of other frameworks (e.g. the GRI and IIRC).

 

In Europe, during 2010, the European Federation of Financial Analysts Societies (EFFAS) and the Society of Investment Professionals in Germany (DVFA) published a list of sectorial ESG key performance indicators that companies are free to use.  Project Delphi (under the leadership of EFFAS and State Street, in collaboration with CSR Europe) is finalising a broader range of sectorial key drivers, metrics and indicators of material environmental, social and governance issues that certain investor communities are likely to take up in their company valuation models.

 

  • Natural capital as a whole is higher on investors’ agenda - Climate Disclosure Standards Board (CDSB) has expanded its framework from climate change to natural capital as a whole, offering companies a reporting framework that investors are more readily taking up in their valuation models. The framework is going through its second consultation period and will be finalized in 2015.
  • Purification of sustainability ratings is under way - Global Initiative of Sustainability Ratings (GISR) has been set up by Ceres and partners to ensure that sustainability ratings convey value, instead of over-ambitious expectations concerning companies.

 

 

 

INTEGRATED REPORTING HAS A LONG WAY TO GO WHILE NON-FINANCIAL/SUSTAINABILITY REPORTING QUALITY ALSO NEEDS TO IMPROVE

 

  • There is a disconnect between executive aspirations and reality of sustainability management and communication

Although the majority of CEOs think sustainability is important for their companies’ future success, only a third of them think business is on track to ensure sustainable operations. (UNGC – Accenture CEO Study 2013)

The PRI investor study shows that although 57% of CEOs say they are capable of explaining their sustainability strategy to investors, only 9% of investors surveyed believe the CEOs are able to explain it at all.

  • Management capabilities to ensure good performance and meaningful reporting need to improve
    KPMG’s Corporate Responsibility Reporting Survey (2013) concludes that companies are still weak on assessing and communicating about material sustainability topics linked to their business. More should be done to map stakeholder expectations in the process.

In addition cascading expectations and engaging the supply chain to improve sustainability performance and be transparent also poses a challenge to companies.

 

 

 

RESOURCES FOR THE JOURNEY

 

  • Check if the requirements of the Directive are affecting your company directly or indirectly (through customer expectations). This legal instrument, under transposition into national law until 6 December 2016, is promoting mature management systems and may potentially affect data collection for reporting.
  • Work towards integration of thinking, management, performance and reporting – ideally following that order.
  • Check the reporting landscape map published by the Corporate Reporting Dialogue initiative to help you in integrated reporting
  • Collaborate with other companies to advance the practical implementation of principle-based approaches, such as the IIRC framework, and also to address management challenges. CSR Europe is a good platform to engage on sustainability management and social innovation.

 

GOOD PRACTICES

 

Titan - Integrated Reporting

 

The annual Dutch Crystal Prize awards integrated reports

 

The Integrated Reporting Database of the IIRC collects integrated reports