If the North Star of Sustainability remains “meeting the needs of the present without compromising the ability of future generations to meet their own needs”, then I find myself asking, “how do the current plethora of Environmental, Social & Governance (ESG) disclosure and reporting requirements help us attain that goal?” I particularly find myself asking this question on behalf of small and medium size businesses who are still grappling with what they can and should do to contribute towards this goal.
I have a dysfunctional relationship with ESG disclosure and reporting requirements. This is not because I think disclosure and reporting are unimportant. Far from it, I know that unless something is measured and reported it may not get done. However, many of the conversations about Sustainability that I have been involved in recently start with disclosure and reporting requirements – deciding which of the myriad of reporting standards that are currently falling over each other for pride of place should be applied by a particular company. So, I cannot help thinking that the tail is wagging the dog.
The reporting world is complex. If large companies with dedicated Sustainability teams are struggling, imagine how smaller companies are feeling. There are now hundreds of non-financial reporting guidelines, frameworks and requirements. The World Business Council for Sustainable Development reported that there has been more than a ten-fold increase in the number of ESG reporting requirements over the last 25 years. In addition, the average length of stand-alone sustainability reports has reached 111 pages with the longest one being 553 pages. We are certainly witnessing an increase in the quantity of information being published by companies and the quality of some of these reports is truly impressive. But the question is whether the quality of reporting truly reflects the quality of what is being done to manage ESG impacts within the business? Is there really the substance to underpin all the reported information?
Many companies have become brilliant storytellers, filling their reports with triumphant achievements. My fear, however, is that we are moving too far away from the basics and prioritising disclosure over robustly identifying and effectively managing tangible impacts. A recent article in the Harvard Business Review questioned the impact of sustainability reporting. The article raises a valuable point, stating that “during this same 20-year period of increased reporting and sustainable investing, carbon emissions have continued to rise, and environmental damage has accelerated. Social inequity, too, is increasing. For example, in the United States the gap between median CEO compensation and median worker pay has widened, even though public companies are now required to disclose that ratio.” That is why I think there is a lot to be gained by going back to basics.
Companies need to ask themselves, what are our ESG risks? Are we prioritising effectively i.e., what are the most material issues and which ones have the most significant adverse impact on the environment and people? Have we developed and are we implementing effective plans to avoid, mitigate or manage these risks and issues? What are our ESG opportunities? How can we leverage these opportunities to benefit our business, our stakeholders and society as a whole? When these questions are answered through effective action, there will be a natural outflow of reporting which will be less time consuming.
I have a plea to all those asking for (nay, demanding) answers to 1001 questions from companies – and particularly from SMEs who are already resourced constrained but need additional funding to grow. It is this. Do ask for information, it promotes accountability. But remember that precious time spent running around a company gathering information to fill the multitude of questionnaires, is time NOT spent managing today’s impacts and being creative and innovative about identifying and preventing tomorrow risks.
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