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The Reporting and Disclosure Temperature Check
From long-standing disclosure requests to new reporting requirements reshaping how corporates present and examine non-financial data, it is clear that reporting and regulation are one of the biggest factors that sustainability teams have to consider. So, just how are businesses faring?
Recent analysis found that environmental, social and governance (ESG) regulations globally have increased by 155% in the past decade, with 1,255 ESG regulations introduced worldwide since 2011.
While a lot of these regulations and frameworks will be region and/or sector-specific it does build to a mounting challenge that many sustainability professionals are struggling to deal with. Recent research found that sustainability professionals find reporting requirements too complex, resource-intensive, and time-consuming. Combined with the sheer volume of disclosure requests, there is a danger that sustainability teams are stuck in reporting mode, and are unable to allocate time and resources to the solutions, projects and strategies that will drive transformative change.
As such, edie’s latest Sustainable Business Tracker sought to uncover the current predicament surrounding regulation and reporting, looking at the internal set-ups for sustainability teams and how they contrasted with the rise in reporting and regulation. This section provides a timely temperature check of whether businesses are struggling with reporting and if they see any value in complying with frameworks at this moment in time.
There are a number of big-ticket regulatory pieces that corporates are juggling at the moment. More than half (53%) of companies claimed to be actively working on developing Climate Transition Plans.
Transition plans go beyond stating emissions goals for business operations and their value chains. They also outline how firms intend to deliver decarbonisation, covering factors such as changes in business models, innovation investments and staffing and skills.
The Government has supported a Transition Plan Taskforce (TPT) in defining what a robust plan should include. It's overarching ‘Gold Standard’ guidance was finalised in the latter half of 2023, with more detailed sector-specific guidance having been provided earlier this year.
For companies seeking to get ahead of the regulatory curve, the good news is that CDP believes companies can develop and disclose a credible plan within two years.
Second on the list of priorities is that of the Corporate Sustainability Reporting Directive (CSRD), which is actively being worked on by just over half of sustainability teams right now.
CSRD is a new reporting framework that the European Union has implemented across the bloc, replacing the Non-Financial Reporting Directive (NFRD). The CSRD aims to provide a more comprehensive picture of a company’s sustainability performance.
It should be noted that due to our survey’s focus on the UK demographic, around 43% of respondents have “no plans to work on it” right now. Due to the infancy of CSRD and organisations being unsure if they need to comply, it ranks second only to nature-based disclosures of the Task Force on Nature-related Financial Disclosures (TNFD) as a piece of work that has already been published. Only 4% of respondents have published their TNFD reports, with CSRD closely followed at 5%. In comparison, one-third of businesses (33%) have published Task Force on Climate-related Financial Disclosures (TCFD) reports.
Number of environmental, social and governance regulations introduced worldwide since 2011.
Increase on environmental, social and governance regulations globally in the past decade.
Q. Where are you on your reporting journey for each of the following frameworks?
These are all giant frameworks, with thousands of pages of guidance to trawl through and even more data sets to build in order to report against them. As sustainability professionals are meant to be activators within their business, there is a danger that the time and resource allocation turns them into accountants.
Indeed, 49% of respondents have a sustainability team of 1-4 people and only 9% are fortunate enough to have 10+ people dedicated to working in their sustainability functions. Sure, sustainability works best when it is embedded across other functions, but currently, more than half (55%) of respondents do not believe their sustainability team is “adequately resourced” to deliver reporting and disclosure requirements.
Around 40% of sustainability professionals are allocating 25-50% of their time annually solely to reporting and disclosure. There’s even a selection of firms (6%) dedicating more than 75% of their time to this activity year-round.
Q. How much time (as a percentage) are you allocating to sustainability reporting and disclosure annually?
Many sustainability professionals believe that increasing their team would help keep on top of regulation and reporting, but currently, only 37% are planning on doing so, with many struggling to get the board to back them with extra resources. Indeed, 44% of businesses spend less than £1,000 on reporting matters annually.
A key issue around these many frameworks is the lack of standardisation, meaning sustainability professionals and teams are taking the data they have and submitting based on varying disclosure demands.
Indeed, a lack of standardisation was cited by one-third (32%) of respondents as their main challenge around reporting and disclosure right now. This was the highest-ranking issue, followed by poor quality of data (26%), time allocation (25%), and a lack of guidance on what should be included in reports (16%)
Q. What are the main issues around reporting and disclosure? (Respondents could tick multiple answers
Fortunately, efforts are underway to remedy this. The International Financial Reporting Standards (IFRS) Foundation and the European Financial Reporting Advisory Group (EFRAG) have jointly unveiled new guidance material aimed at streamlining sustainability reporting practices, in a bid to make reporting more cost-effective and resource efficient for companies.
The guidance illustrates the alignment achieved between the International Sustainability Standards Board’s (ISSB) IFRS Sustainability Disclosure Standards (ISSB Standards) and the European Sustainability Reporting Standards (ESRS).
At its essence, this document aims to address the challenges encountered by companies when adhering to multiple reporting frameworks, such as complexity, fragmentation and duplication. By streamlining the process, the goal is to empower companies worldwide to disclose sustainability-related information in alignment with both ISSB Standards and ESRS.
The ISSB, which has taken over the mantle of TCFD disclosures is also focusing on harmonising corporate disclosures on nature and the net-zero transition. One key focus area for the ISSB’s work will be on net-zero transition plans. These build on corporate emissions targets with more detail on delivery, including investment plans, changes in business models and upskilling/reskilling staff. Transition planning is included in the ISSB S2 Standard.
The body that set up the ISSB, the IFRS Foundation, will assume responsibility for the disclosure-specific materials developed by the UK-based Transition Plan Taskforce.
Additionally, the Global Reporting Initiative (GRI) and the Taskforce on Nature-related Financial Disclosures (TNFD) have released a joint interoperability mapping resource, in a bid to enhance alignment between their two frameworks.
As this convergence continues to take shape it is hoped it can reduce data duplication and streamline how data and reporting requirements from corporates can be shared; reducing time and resources as a result.
The end game for this heightened level of disclosure is to ensure that corporates can map a path to their climate goals and accurately articulate progress to investors and other stakeholders in a way that negates the presence of greenwashing. Improved data, accuracy and transparency will ultimately ensure the flow of capital goes into businesses and projects that can demonstrate the active steps they are taking on ESG.
Currently though, many businesses are undertaking these reporting and disclosure requirements because they’ve been asked.
We asked our audience to rank the reasons for reporting based on the importance each factor had for their company. Compliance with regulation was the overwhelming reason why, with 62% of sustainability professionals ranking it as the major deciding factor. Reputational benefits, appeasing stakeholder demands and creating long-term certainty for the business, made up the rest of the reasons for such a focus on reporting right now.
While businesses may be struggling to see the value that this convergence of reporting frameworks could have beyond just complying with them for now it is refreshing to see that most within the sustainability profession see this as short-term pain for long-term gain.
When asked “Do you think reporting and disclosure is helping or hindering your goal of driving climate action?” 78% of respondents stated that they were helping.
When asked “Do you think reporting and disclosure is helping or hindering your goal of driving climate action?” 78% of respondents stated that they were helping.
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