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Stakeholders want clarity on how businesses impact employees, customers, and wider society

“You can’t manage anything you can’t measure.”

It’s an oft repeated truism and a mantra of business schools around the world - but when it comes to sustainability reporting, this familiar phrase only tells a fraction of the story.

Delegates attending day one of the 2021 European SDG Summit heard Giulia Genuardi, Head of Sustainable Planning at the Italian energy giant Enel, use the phrase to set up a discussion that drilled deep into the complexities of reporting on business progress towards sustainability targets.

There was broad agreement that clearly defined ESG reporting standards will enable businesses to meet their own sustainability targets, fulfil the demands of investors and shareholders, and act as good corporate citizens in the communities and societies they serve.

Defining metrics for sustainability

But, there’s a problem; and it goes to the heart of the climate and biodiversity crisis, according to Hakan Lucius, Head of Corporate Sustainability at the European Investment Bank. “Let’s be very clear”, he said, “sustainability reporting is so different to financial reporting because first of all, what is your unit of measurement?”

It’s a question that highlights the fact that sustainability reporting is still in its infancy, unlike traditional accounting.

“Measuring climate is one thing,” said Lucius, “measuring air pollution is another thing. What's the unit of your assets, about people being stakeholders?  It’s multi-dimensional and that makes it inherently difficult”, he told delegates.

The European Financial Reporting Advisory Group (EFRAG) is working to develop a framework for sustainability reporting that will provide answers to many of the questions above. EFRAG’s aim is to deliver a consistent set of metrics against which companies can measure progress on sustainability. In April 2021, the European Union issued a proposal for a Corporate Sustainability Reporting Directive (CSRD) which will require all companies falling within its scope to issue audited, machine readable sustainability reports.  

The time to act is now

With a new set of regulations on the horizon, there may be a temptation among business leaders to do nothing until the new framework is enshrined into European law. That would be the wrong approach, says Srinivasa Yerchuru, Vice President and Global Head, BFSI Industry Advisory at Tata Consultancy Services. “Recognise that we live in an evolving regulatory framework,” [ZR1] he said. “The time to act is now, so do not wait for mandates to evolve in various geographies. Take a proactive step and be the bearer of the torch.”

Acknowledging that sustainability data is currently incomplete, Yerchuru also urged companies to learn to work with what they have, and not wait for “data perfection”.  He advises business leaders to leverage technology to get the most from the data currently on hand.

Technology and the future of sustainability reporting

Accurate sustainability reporting will require a huge amount of data gathering and analysis and it’s here that technology and digitalisastion will really come to the fore, according to Srinivasa Yerchuru. “There are four key technologies which will become very relevant. First is the cloud, second is blockchain, third is artificial intelligence and then machine learning.” The combined power of these technologies will offer enterprises the ability to ingest large volumes of data, process and generate insights for reporting and decisions making.

The proposed TCS framework for sustainability reporting includes three key steps: Standardise, Integrate and Engage. The first relates to the importance of having reliable data sources with input from a full set of stakeholders to capture data across the entire value chain. Integration refers to leveraging the multiple technologies being used to assess and analyse the data related to various dimensions. As sustainability reporting continues to evolve, there will be continuous efforts to integrate non-financial aspects (intellectual, natural, social or other forms of capital) of reporting into business strategy and financial reporting.

 

 

 

reporting inline

Caption: A stakeholder expectation matrix for sustainability reporting

Thirdly, Engagement refers to the need to ensure that inputs are received from various stakeholder groups and sustainability reporting produces relevant output to appeal to them. The chart above details a TCS matrix of stakeholder reporting expectations.

Recognising our purpose in sustainability reporting

Concluding his address to the European SDG Summit, Srinivasa Yerchuru was keen to stress that the purpose of corporate sustainability reporting goes far beyond compliance. We will see the true benefits when everyone collaborates and engages with a common purpose to build a better future for people and the planet.