Priorities for sustainability reporting

Priorități pentru raportarea sustenabilității

Priorities for sustainability reporting

The increased interest of the new generation of investors in environmental, social impact and governance (ESG) aspects increases the importance of capital allocation information.

Reports, communications, taxonomies, ratings, there are so many communication vectors that transmit information that moves stock market indicators.

Issuers or recipients, from investors, board members, management, employees, civil society to rating providers, auditors, regulators and legislators, all make up the informational ecosystem relevant to ESG.

Despite the support of a global sustainability reporting standard, there is a lack of unanimity regarding the modality of applying the metrics and the use of data from this informational ecosystem.

However, a majority is emerging among investors who want ESG reporting to be measured against a solid global standard that becomes a mandatory requirement.

The harmonization of different regulatory systems as well as different social and political contexts add new challenges regarding the speed and modalities of ESG development and implementation. However, there are five areas of intervention for ESG reporting to be reliable and useful for decision-making.

1. Increasing the transparency of composite indicators

A company is scored on a wide range of ESG aspects, with different weights given to each issue. These issues include everything from climate change to pollution and waste, from product liability to tax transparency.

There will continue to be challenges in calculating social impact or analyzing a company’s environmental performance, but increasing the transparency of these composite indicators brings more accuracy to the calculation of the ESG rating.

2. Increasing understanding of the uses of information

Sustainability information can serve two purposes: to assess financial risk and to assess social impact. These uses are not mutually exclusive, but they are easily confused.

While there is overlap, there remains a need for more clarity on the distinct use cases of sustainability information.

There is also an opportunity for ecosystem stakeholders to consider how they can address the needs of all users of sustainability information.

3. Establishing the conditions that allow insurance

As the demand for assurance increases, it will be essential that actors in the sustainability information ecosystem recognize and adhere to the risk management concept known as the “three lines of defense”. These lines are: 1. internal control, 2. independent external assurance, 3. regulatory oversight.

Widely recognized, these lines of defense are essential to building trust and maintaining a rigorous reporting system that provides accurate and unbiased information.

4. Development of comparable and interoperable classifications

Classifications are systems that determine which economic activities should be considered sustainable. They can help remove confusion about what is considered sustainable and what is not, by providing a clear, data-based benchmark as to why a particular activity does (or does not) fit the sustainability classification.

5. Facilitating the adoption process in emerging countries

The absence of sustainability data in emerging economies suggests the need to reduce barriers for market participants in these economies to generate and provide sustainability information.

This does not mean advocating the application of different standards because they could be counterproductive. On the contrary, it requires improving the technical assistance provided and the inclusion of emerging economies in the sustainability information ecosystem.

The sustainability movement is in its infancy. The world is changing at an unprecedented pace. In these times, a company must invest in the three key drivers of long-term growth: people, communities and the environment.