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Reporting and disclosure
Reporting is a crucial component in the drive to meet net-zero goals and achieve the Just Transition. Adhering to a transparent framework can enhance accountability and transparency and effectively track progress.
Recent analysis found that ESG regulations globally have increased by 155% in the past decade, with 1,255 ESG regulations introduced worldwide since 2011. More than half of UK-based sustainability professionals find reporting requirements too complex.
The role of the sustainability professional is largely about delivering change, but far too many sustainability professionals believe they are looking backward rather than forward – stuck uncovering and analysing data as part of an ever-growing set of disclosure requirements.
Reporting frameworks are largely seen as compliance exercises.
UK companies must prepare for the incoming EU Corporate Sustainability Reporting Directive (CSRD) which requires companies that operate or sell into the EU to report on how sustainability issues, such as climate change, impact their business and how their operations in turn affect people and planet. The CSRD replaced the existing Non-Financial Reporting Directive (NFRD) and Accounting Directive and came into effect across the EU in January 2024. Around 50,000 firms will need to comply.
In our last survey, we uncovered that one in five businesses (19%) weren’t sure if they needed to comply with CSRD. Of those that did, 16% had started their reporting journey.
The responses suggested UK companies were not ready to comply with the CSRD. Less than a third (27%) of the CSRD-qualifying businesses that responded hadn’t even started their compliance work yet. And just 5% of them were compliant already.
The first CSRD reporting is due in January 2025, so there is now limited time to ramp up action on compliance. But clearly, more and more companies are getting their heads around what is required and taking action to stay ahead of the law.
While only 10% of survey respondents listed “reporting requirements” as their main, micro-level challenge at the moment, it is third in the list of challenges behind lack of finance and short-term profitability mindset. If more funding is unlocked for businesses, it would pay well to spend resources on the reporting function.
Mandatory reporting frameworks like the CSRD don’t apply to every business, but it was cited by 10% of organisations as a “business-critical” reporting framework, second only to the TCFD recommendations (13%). Worryingly, 25% of businesses are unsure if CSRD needs to be a priority or not for their organisation.
Q. How much of a priority is your organisation placing on the following areas of non-financial disclosure in 2024?
But even fewer companies think following non-mandatory, non-financial disclosure frameworks and recommendations is important. For example, 70% of respondents said aligning to the requirements set out by the Taskforce on Nature-related Financial Disclosures (TNFD) was below a ‘medium’ priority. The TNFD has created a set of disclosure recommendations and guidance to help firms assess, report, and act on their nature-related dependencies, impacts and risks.
The apparent lack of prioritisation over non-mandatory frameworks suggests reporting on climate-risk issues is very much a compliance exercise, as opposed to a useful tool to de-risk business operations, build resilience and improve sustainability performance. Again, the confusion as to whether a business needs to report against frameworks is adding to the belief that reporting is a cumbersome aspect of corporate sustainability.
Collaboration, innovation and diversity high up the agenda
Reporting is generally viewed as a high priority for survey respondents. When asked “How much of a priority is your organisation currently placing on the following areas of sustainability and CSR?” climate-related financial disclosures were listed by 31% of respondents as either a “high” or “business critical priority”. Developing a Climate Transition Plan was even higher up the list, 33% listed it as a high priority and 19% stated it was business critical.
It is important to note that respondents to the survey are being asked to self-define the term ‘sustainability’ and performance progress and levels of ambition being shown across the range of ESG subjects – from human rights and employee wellbeing to energy management and biodiversity – will differ widely.
One area that appears to be getting plenty of focus is workplace diversity, equality and inclusion (DEI). Many companies are struggling to deliver against DEI goals in the absence of suitable measurement and tracking frameworks. But such developments are certainly helping to focus the minds of executives. Almost half of the respondents (47%) said they are placing a high priority on tackling DEI issues right now. Additionally, 16% claim DEI to be ‘business critical’, up from 10% in the previous Tracker.
Fostering new mindsets through diversity may also open doors to different approaches to collaboration and innovation, both of which are high up the agenda for sustainably-minded businesses.
One-third (33%) are placing a “high priority” on new technologies and innovation, and 16% view innovation as a business-critical aspect of their strategies. Whether they have the funding to invest in such solutions, as detailed in the previous section of this report, remains to be seen.
Collaboration scored similarly to innovation – one-third of businesses view it as a high priority, and 17% note that it is business critical.
Q. How much of a priority is your organisation currently placing on the following areas of sustainability and CSR?
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