Our thinking

Reporting, reporting…

7 April, 2023

We like breakfast. And we like talking about sustainability reporting – how to do it better, how to make it more effective, how to get more out of it. So we were delighted to have the chance to do both when we sat down with with Mark Byatt, who works at the International Financial Reporting Standards Foundation (IFRS), and Marcia Balisciano, who heads up the CSR team at RELX, for Echo Research‘s ESG breakfast briefing. We reflected on where we are (in Mark’s words, it’s a “confusing landscape” that resembles a “sort of alphabet soup”), how fast things are moving in this space (answer: very fast) and an opportunity to reflect on where we’re going (spoiler: it may get worse before it gets better).

 

The forthcoming ISSB standard, due to be published by the IFRS later this year, along with other upcoming sustainability disclosure regulations in the US and EU (all of which we’ll talk about next week), will have a profound impact on sustainability reporting. Mark described the ISSB standard as a framework that works with existing standards and which will provide a baseline for organisations to ensure that they are addressing investor needs, reducing rather than adding complexity and cost to non-financial reporting. If the emphasis is on comparability and tightening up how core information (which is what investors want and need) is presented, where does this mean for other audiences? Take employees, for example, who want to know whether they are working for a company that is genuinely making change, how that change is happening, and what it looks like in practice. That requires qualitative information that isn’t particularly relevant to investors. As some elements of sustainability reporting become more standardised to suit investor audiences, it’s therefore likely that we’ll need new and more creative ways of communicating sustainability progress to different stakeholders.

 

As the discussion continued, Marcia asked whether more regulation and another standard is really necessary. This is an interesting point, the real question being whether the regulation of sustainability reporting might risk diverting time and attention from what really matters, which is genuine change and real action on urgent sustainability issues. Might we end up with data dumps that obscure the successes (and failures) and take away incentives to innovate and try new things? It could seem as if, as Giles observed, “the balance is leaning towards too much on talking to the outside rather than changing on the inside.”

 

It is a risk, but – we hope – a short term problem rather than a more fundamental challenge. While things shake down, it is important “we don’t let perfect get in the way of progress” as Giles pointed out, and that we keep our eyes on the point of all of this, which is to improve social and environmental outcomes. Reporting is a way of letting people know what has changed, and why. If change isn’t happening, then reporting is not doing its job. It means sustainability teams are facing competing priorities over the next few years, navigating new reporting requirements while making sure that they remain focused on what is happening in the business.

 

We are at a point of inflection, which is going to be complicated and messy to navigate in the short term. That said, we believe that in time there will be much-needed clarity for businesses around what and how to report, meaning that there should eventually be less head scratching over how to do it and more time available to think about what it all means and more nuanced communication to different audiences. And forthcoming research commissioned by Echo shows that ESG performance is becoming an ever more important driver of corporate reputation and that, as a result, the way in which businesses manage and monitor ESG issues is becoming increasingly important. If you can’t manage what you don’t measure, then you most certainly can’t be rewarded for what you don’t report on.

 

The good news is, we’re here to help. If you want to know more, keep your eyes peeled for our special edition of Friday 5 next week where we explore these issues in more detail.

 

By Marie Guérinet