September 10, 2018

From voluntary disclosures to regulatory push: Recent trends in sustainability reporting

Tim Mohin

Twenty years ago, the Global Reporting Initiative (GRI) established sustainability reporting guidelines at a time when it was rare for companies to disclose non-financial information. Today, more than 90 percent of the largest 250 companies in the world report sustainability information, and 75 percent of them use the GRI Standards.

In two decades, sustainability reporting has gone from a small and voluntary undertaking that only a few, mostly large, companies engaged in, to a mainstream activity that can provide actionable business insights. This article explores the main trends that have led us to this point and poses a question: While so many more companies are reporting now, is this practice producing the results we seek?

Reputation vs. action

In all candor, sustainability reports are still often issued to bolster a company’s reputation. But we are seeing that regulatory filings, financial reports, and investor demands increasingly incorporate information that was once relegated to the sustainability report. This is adding more scrutiny to company disclosures and has increased interest from the legal and financial professions into the wealth of non-financial data that sustainability reporting makes available. More importantly, by engaging key stakeholders with this information, the renewed interest supports the fundamental purpose of sustainability reporting—to advance sustainable development.

Growth of reporting mandates

Along with heightened scrutiny, there is a growing regulatory push, from both governments and capital markets, encouraging more transparency on sustainability impacts. GRI is currently monitoring some 450 policies in more than 100 countries that require some level of environmental, social, and governance (ESG) disclosure; about 150 of them are capital-market listing requirements. One of the most recent and comprehensive policies is the European Union (EU) Non-Financial Information Directive, adopted by all EU member states, which is now being implemented.

As more and more mandates come into force, there will be even more pressure to align on a single global ESG disclosure standard, and many of the current policies either mandate or mention GRI as the benchmark disclosure standard.

Smaller companies

While ESG reporting is common practice amongst larger firms, it has yet to be adopted widely by small and medium sized (SME) companies. The practice is perceived as being too complex and costly for many SMEs. GRI is working on ways to both simplify the process and add more value.

Reporting and the Sustainable Development Goals

The Sustainable Development Goals (SDGs) are the global roadmap for sustainable development. But, with 17 goals and 169 targets, they can confound even the most experienced reporting organization. With some company revenues exceeding a nation state’s gross domestic product (GDP) and supply chains that stretch around the world, it is obvious that companies play a central role in reaching the SDGs. Currently, the leading companies are reporting on how their corporate responsibility programs match the SDGs. If we want to realize these goals, however, we must dig deeper and figure out how to go from mapping to action.

Working with the UN Global Compact (UNGC) and the Principles for Responsible Investment (PRI), GRI is developing new guidance for how companies and investors can assess their role in helping achieve the SDGs.

Reporting goes digital

As a field of practice, ESG reporting is behind the times when it comes to digitalization and data analytics. Many reports are still issued in PDF format or the information is spread out throughout company webpages. To encourage digital reporting in a format that allows for better data analysis, GRI has recently issued an open-source digital reporting tool. The tool is aimed at helping organizations collect and disclose ESG data. Going forward, the analytics from the aggregation of these disclosures will allow for better benchmarking and, ultimately, help advance the cause of sustainable development.

The myth of fragmentation

Stakeholders engaged in sustainability reporting often complain about the myriad of reporting frameworks and the confusion this creates. The fact is that there are very few disclosure standards that deal with the full range of ESG information in broad use today. The two most adopted disclosure frameworks are GRI and CDP (The Carbon Disclosure Project) and they are completely aligned. The GRI Standards cover a broad range of ESG topics, while CDP requests detailed data on three focused topics—carbon, water, and forests.

In addition to disclosure standards, there are a few frameworks aimed at helping to integrate ESG disclosures—including the International Integrated Reporting Council (IIRC) and the Carbon Disclosure Standards Board (CDSB). There is also a plethora of “indexes” that aggregate ESG disclosures into ratings and rankings such as the Dow Jones Sustainability Index. But these frameworks and indexes are not disclosure standards. They serve to organize and aggregate information and as such should not be lumped together with sustainability reporting standards.

The road ahead

These trends are reason for optimism. But we cannot become complacent. Past progress rests on a voluntary system underpinned by disclosure standards that are only sparsely supported by the industry that relies upon them. Going forward, public scrutiny, regulatory mandates, and investor demands will lead to the continued growth, consolidation, and maturity of the ESG disclosure landscape.

We have come a long way in a short time. To quote Robert Frost, “I have promises to keep…and miles to go before I sleep. While ESG disclosure has become ubiquitous, we must integrate it into mainstream financial decision-making. Certainly, the regulatory push for reporting mandates will be crucial in this endeavor. Integrating ESG disclosure sounds easier said than done, but the payoff is that we will align capitalism with the needs of our world.

Tim Mohin

Tim Mohin is chief executive at GRI, the leading standard-setting organization for sustainability reporting.