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In the last five years, sustainability reporting has gone from a “nice to have” to a “must have” for companies that want to remain competitive in the 21st century.
From the top down — think Pope Francis declaring climate change a moral imperative — to the bottom up — consumers demanding that Starbucks use recyclable cups (just not plain red ones for the holidays) — all indications are that 2016 will be the year sustainability reporting comes of age.
But with so many initiatives, players and changes in the wind, which ones do forward-thinking companies need to focus on? Here’s a look at the top 7 global sustainability reporting trends, the challenges they represent and solutions to those challenges:
1. Data becomes more visible. Big data is so 2015. Everyone knows companies can become paralyzed by that volume of data they produce. In fact, one organization alone can generate tens of millions of energy- and sustainability-related data points per year. But savvy firms are starting to take advantage of all that data by consolidating it and making it accessible — so it can inform meaningful actions.
For example, a leading home appliance manufacturer uses a tailored version of Schneider Electric’s Resource Advisor™, which allows the company to collect information from more the 250 source streams, covering energy, water and waste. This SaaS platform functions as the “one version of the truth,” ensuring the enterprise employs the same data sets worldwide.
The number and variety of energy and sustainability metrics tracked and reported has also skyrocketed. According to research firm Verdantix, organizations have adopted more than 2,500 unique metrics for use in sustainability reports. The importance of selecting consistent, relevant and measurable performance indicators is paramount.
Challenge: More than 70 percent of companies across the globe still use spreadsheets to track data used in reporting, according to a 2012 survey by Oracle and Accenture. And that has led to reporting errors — a University of Hawaii study found that as many as 88 percent of spreadsheets contain inaccuracies. Many organizations are still suffering from the glut of data and haven’t yet created a centralized database that ensures precision and visibility.
Solution: Technology is emerging that seamlessly integrates information systems together and makes data visible and actionable. Teaming with a partner, such as Schneider Electric, and using Resource Advisor or a similar platform to aggregate and analyze data, is a smart way to take advantage of these systems.
2. CFOs become sustainability advocates. As sustainability programs increasingly demonstrate cost-savings and operational efficiency, CFOs — not just environmental advocates — are pushing for better reporting. In fact, 74 percent of CFOs now believe measuring and reporting their total financial and non-financial environmental and social governance impact contributes to long-term success, according to a 2014 PwC survey.
Another dramatic shift: CFOs are embracing renewable options like wind and solar like never before, as new financing options, rapidly declining technology costs and incentive programs deliver financial benefits that outweigh buying energy off the grid. Companies reap both sustainability and fiscal benefits — truly a watershed moment.
Challenge: As CFOs and other top executives become more invested in sustainability and renewables, reporting accuracy and reliability are essential. However, many companies have not yet developed the systems and processes to provide these types of reports. They may also have trouble connecting financial benefits to green energy and sustainability goals.
Solution: Make sure financial data is presented with sustainability metrics. In other words, you want to not only track greenhouse gas emissions, but also the cost and savings from reducing them, and how they relate to the products or services provided by a company. Contextualize the information so the connection between the adoption of renewable energy and other sustainability initiatives, and the bottom line is clear. Learn more about Sustainability Reporting Services.
3. Reporting requirements become prevalent. Worldwide reporting requirements have been multiplying, often unbeknownst to companies. The White House just announced 68 new signatories to federal climate action programs. The EU is now extending the scope of reporting beyond carbon to human rights. Even China is entertaining a cap and trade scheme.
Challenge: Unlike the past, skirting sustainability requirements leads to more than just a slap on the hand. Rankings and indexes such as the DJSI, GICS and STOXX have become important to company valuations. Google Finance now shows a publically traded company’s CDP score alongside its stock price — one of several key performance metrics. Meanwhile, third-party audits and journalists have added an extra layer of scrutiny to the data behind these indexes. Just look at Volkswagen to see what can happen when a company releases incorrect or inaccurate reports.
Solution: Integrated systems that supply reliable, verifiable data will make audits easier and mistakes less likely.
Resource Advisor aggregates and analyzes data from disparate systems.
4. Materiality becomes the new litmus test. As companies get a handle on their data, they’re coming to realize that not all of it is relevant. Rather than sharing the entire haystack, companies are taking a step back and asking, “What programs and corresponding figures will move the needle for our business?” Materiality — deciding what is and isn’t directly impactful and relevant — will set the stage for what to disclose.
Challenge: Knowing what data points are relevant isn’t as easy as it sounds. It takes even more understanding and analysis to make that determination. In turn, that means companies need more robust data integration systems that allow for visibility and searchability across silos and even borders.
Solution: Working with industry experts and innovators to develop tailored strategies and technology that assist in assessing materiality will be crucial to producing relevant sustainability reports. Technology alone is not the answer.
5. Transparency becomes the norm. Sustainability reports are becoming as important — and as widely viewed — as quarterly financial statements. That means companies have to become more and more transparent about how their reports are created and what the results are based on. Voluntary disclosure activities have boomed, and the top three regions that report under the GRI are Europe (37 percent), Asia (25 percent) and North America (14 percent).
Challenge: As investors see the financial benefits of sustainability, they’re now making decisions based on what their company reports. And as climate action becomes tied to company brands, a larger and larger microscope will be used to review reports. Both challenges demand a standard that sustainability reporting hasn’t been held to in the past. Sustainability executives must be able to ensure data accuracy to keep both boards and consumers satisfied.
Solution: Create an inventory management plan that governs and structures reporting mechanisms across the enterprise. The plan, which can be developed with the aid of an unbiased third party, needs to clearly identify roles and responsibilities of the various sustainability team members and the methods by which they collect their data and produce their reports.
6. Regional differences become amplified. Sustainability is now a global concern, but the approach and reporting requirements differ from country to country. So it’s important to understand the differences, and address regional needs and norms in reports. For example:
Asia-Pacific – In this region, climate change discussions in major commercial hubs now include topics such as adaptation and resilience, not just mitigation. Taking a broader view requires policy responses — and sustainability actions — that address everything from infrastructure reliability to supply chain disruptions to food security. One consequence: It is likely that companies listed on the Hong Kong Stock Exchange will have to include “comply or explain” codes of practice in ESG reporting at the start of 2016.
Europe – Meeting mandates continues to be the focus across Europe. With EED regulations at the European Union (EU) level, along with country-level policy like the GHG reporting rule in the U.K. and the Grenelle Act in France, corporations will devote their attention to these requirements.
North America – Investors and consumers are demanding greater transparency in the U.S. While regulations are beginning to take shape, the vast majority of reporting still comes from companies looking to generate trust and goodwill with their customers, shareholders and employees.
Challenge: Multinational companies need to understand the drivers and obligations in each market and refine their sustainability and reporting efforts accordingly. At the same time, these businesses must determine how to communicate these actions to consumers who increasingly expect organizations to demonstrate global corporate responsibility.
Solution: Ensure you have people on your team who understand what is driving the demand for global transparency or reach out to experts that can help. Consider working with a trusted partner that offers a global perspective to help guide your strategy — and makes you a sustainability leader.
7. Legislation becomes a force for good. Policymakers are enacting sustainability-focused statutes faster than ever before and that is expected to significantly increase after COP21. The EU is an example of how a political structure can become an agent of change and drive the response to climate change. EU is considered to have the most extensive environmental laws of any international organization. As a result, average emissions of the 28 member states that make up the EU have declined by 12.2 percent compared to base-year levels. The EU has overdriven its commitments by approximately 236 metric tons of CO2-equivalent per year (5.5 percent of base-year emissions).
Challenge: It can be extremely difficult for companies to know the rules they need to comply with in every region they operate. And the complexity is set to compound with a new wave of rules and regulations.
Solution: Monitor the legislative landscape or partner with an expert that knows the terrain, and engage with policymakers who are catalysts for positive change. While complex, sustainability reporting shouldn’t be an albatross. It takes a pragmatic approach that combines the right people, perspective and technology. As attitudes and the marketplace continues to evolve, and the demand for social responsibility reaches critical mass, sustainability initiatives and reporting will deliver dividends and a competitive advantage to companies that lead the pack. Learn more about our Sustainability Compliance Management.