Explore the seven key elements of sustainability reporting that form the basis of any credible sustainability report.
Sustainability Reporting is an elaborate practice that demands its share in time and resources. It can be particularly challenging for first-time reporting entities who have to set up processes for data collection from scratch. Additionally, there is compliance with current and upcoming regulations and adherence to the chosen reporting standard.
This article provides foundational information that can help navigate some of these challenges. It lists the seven elements that make a credible sustainability report. Having an in-depth understanding of what comprises each element can help you plan and implement your sustainability reporting project more effectively.
What is Sustainability Reporting?
Like financial reporting, sustainability reporting aims to provide all the sustainability data and information about the reporting entity in one place. This is done by publishing a sustainability report annually or biannually. The report is usually publicly available and shared via the company’s website.
Also, like financial reporting, sustainability reporting is done based on standards. These standards provide a detailed framework for what to report on, and the kind of data that should be included.
7 Key Elements of Sustainability Reporting
These seven elements are the building blocks of a sustainability report. Except for the seventh element of Audit/Assurance, all the others are a must-have for any credible sustainability report.
I have chosen these category names and order for simplicity. However, even though the format or category name might differ from standard to standard, every reporting standard will ask for this information to be disclosed.
1. Materiality Assessment
The first step of sustainability reporting is assessing the materiality of sustainability topics. A material topic or issue refers to a significant social, environmental, or economic concern that either affects the business or is affected by it. For example, greenhouse gas (GHG) emissions are a crucial material issue for businesses due to their substantial environmental impact. Similarly, the climate crisis is a significant material issue that profoundly affects the present and future operations of businesses.
A business has to prioritize sustainability issues in order of materiality and this information is then shared in the report. It is expected that the business has identified and prioritized these issues based on inputs from multiple relevant stakeholder groups. A section for materiality is often included at the beginning of the report that provides this information. A popular way of sharing materiality information is through a materiality index, supported by a methodology section.
2. Environmental Disclosures
These disclosures include information about the impact of an organization’s operations on the environment. For most businesses, gathering any kind of environmental impact data is a recent practice. Even those who do have processes in place to collect it, will unlikely have it for all the disclosures.
Therefore these disclosures have a good bit of flexibility built into them. Many of them that are optional. This allows businesses to choose which one they have information available for or alternatively which they choose to spend resources on to gather the information. The latter again feeds back into the materiality of topics and feasibility.
Some key categories that environmental disclosures cover are:
- Materials consumed
- Energy consumption
- Water consumption
- Impact on Biodiversity
3. Social Disclosures
The social disclosures category covers the impact of the business’s operations on people. This includes people both internal and external to the organization. These would be employees, suppliers, employees working for suppliers, contractual workers, freelancers, etc., and society at large. Social disclosures also include information about the company’s actions where they impact a broader grouping of people. For example, if the company has any programs or targets in place for social welfare, marketing information, or any compliance-related instances with regard to society at large.
Just like the environmental disclosures, there is some flexibility built into these. Companies can disclose what they have information on or what they can gather in the period leading to the publishing of the report. For instance things like supplier employment-related data. Many companies either do not have access to it or find it difficult to gather it. In this case, it is recommended to disclose what is available. It is still real information and goes a long way in showing intent and transparency.
Some key categories that social disclosures cover are:
- Training and Education
- Health and Safety
- Marketing and Labeling
- Social Impact
4. General and Governance Disclosures
The general disclosures contain general information about the company’s:
- Legal name and address
- Supply chain
- Markets served
Governance-centric disclosures focus on information about the ownership and internal structure of the organization. It contains information about responsibility delegation within the company and processes in place to monitor and manage its environmental and social impacts.
Additionally, it contains basic economic and compliance information about the company such as its performance, salaries etc.
While general disclosures are more or less elementary and a must-have for sustainability reporting, there is some flexibility with governance disclosures. However, governance disclosures are more open to scrutiny with regard to transparency. This is because most of the information asked for is readily available to the reporting entity. The fact that they choose to omit something is seen as being done intentionally.
Some key categories that governance disclosures cover are:
- Company ownership
- Tax strategy
- Responsibility and delegation of authority regarding economic, social, and environmental topics
- Identifying and managing economic, social, and environmental impacts
- Procurement practices
5. Sustainability Initiatives, Efforts, and Progress
Very few companies do sustainability reporting just as an exercise in compliance. They approach it as not simply an informational, but also a marketing document. Something that showcases their vision, efforts, and progress on various sustainability-related topics.
And there is nothing wrong with this approach. In fact, it is good for sustainability reporting as a practice in general if companies see it as a practice that serves multiple functions such as being a:
- One-stop sustainability document for all stakeholders
- Proof of transparency
- Promotional and brand-building exercise
A good way to share information about the company’s sustainability initiatives, efforts, and progress is to tie it with the corresponding ESG (environmental, social, and governance) disclosures. This keeps the information relevant and protects from it being seen as simply a marketing exercise.
6. Reporting Scope and Index
If you have ever seen a sustainability report you will find a section called reporting scope and index at the very end of the report. The scope is a description of the standard or standards the report has followed and included and whether it complies with any of them.
For example, GRI, the sustainability reporting standard, most widely used across the world, provides two options: core and comprehensive. The core option requires some of the disclosures to be answered and others as optional, while the comprehensive requires all of them to be answered. This compliance information is included in the scope section.
The index is simply an index for disclosures. This helps anybody looking for specific sustainability data to reference it and find it in the report.
An audit/assurance of a sustainability report is done by sustainability professionals. Corroborating data and documentation are provided by the company and the professional double-checks if everything is in order. As sustainability-related information can be hard to provide data for, site visits and interviews with company employees can also be part of the procedure.
Once the audit is complete the professional provides a stamp of assurance to the report. Sustainability report assurance is an important and growing practice and it provides an extra seal of credibility to the report.
Sustainability reporting is a months-long project and requires a good bit of planning and research, especially for first-time reporting companies. Although there is a wealth of information available on the topic, the sheer volume of it sometimes makes it hard to work with and pull out what you really need to know to get started.
The intention behind providing this concise overview of the key elements of sustainability reporting is to point the reader in the right direction. This information is by no means comprehensive, but it will help to discover what to look for.