Why a common standard for sustainability reporting is a necessity for all

Despite a handful of eccentric comments overheard during COP 28[1], science unequivocally and consistently confirms the climate crisis requires urgent transformative action. The only realistic course of action is to fully engage into a radical transition that fundamentally changes policies and business practices.

While climate is getting most of the limelight, biodiversity destruction, pollution and waste accumulation, soil degeneration, natural resources exhaustion all pose fundamental and systemic risks to the planet’s sustainability. Scientists express growing concerns that we are jeopardising the conditions that make earth liveable.

How can we do business if the planet is not liveable anymore?

This questions the economic model that emerged post World War II and has accelerated exponentially since then.

Company stakeholders have not overlooked these issues. Customers, employees, communities, investors, policymakers and regulators now demand greater accountability and transparency from businesses regarding their impacts on society and the environment.

Markets need useful and credible information on sustainability impacts to make sustainable decisions. Choices, in particular investments, require comparing different options. Having comparable, high-quality sustainability reporting and assurance in the EU (and beyond) is a logical necessity.

In the EU, the Corporate Sustainability Reporting Directive (CSRD) is fundamental to the European efforts to transition to a net zero economy. Under the CSRD, companies have to report in accordance with the European Sustainability Reporting Standards (ESRS) that cover environmental, social, and governance issues, including climate change, biodiversity and human rights. This extends beyond a compliance exercise and considering it as such because it results from regulation, is novel and sometimes very granular would be a mistake. Sustainability reporting is a strategic imperative for humankind and the planet, but it is also a strategic imperative for companies who want to thrive in a changing world. Fully incorporating science and sustainability considerations into strategic decisions, operations, value chains and company culture is the only pragmatic approach to secure the business’ future.

Alignment between the company’s purpose, strategy and culture is essential to ensure a consistent delivery on the sustainability efforts.

There are also proven business opportunities arising from considering ESG matters. These include efficiencies and operational cost reductions, supply chain resilience, better management of business risks, including liability, regulatory, reputation and market risks and attracting talent.

Connecting financial and sustainability reporting is essential to make better decisions and prevent the risk of inconsistencies and loopholes.

It also helps to provide a holistic view of all the factors that may affect value creation and facilitates better integration of physical realities in a world where finance has become the key, if not sole, driver of business decisions. But there is not a finance planet on the one hand and a physical planet on the other. In the end, physical realities always prevail over laws, finance and politics, we cannot extend the planetary boundaries.

By providing comprehensive information beyond finance and commercial strategy, corporate issuers can not only enhance transparency and satisfy a legal and societal demand – they can also increase investors’ trust and secure their loyalty. This is indispensable in view of the massive investments that are required to transform and survive.

To secure this loyalty and restore trust in societies, independent and expert assurance on sustainability information plays a crucial role. It brings reliability, accuracy, and transparency of sustainability-related data and reporting.

Peter Drucker is often quoted with the shorthand “what gets measured gets managed” (though the exact wording may vary). He however wisely added that things get managed “even when it’s pointless to measure and manage them, and even if it harms the purpose of the organisation to do so.” While sustainability impacts need to be measured, unreliable measurement surely is harmful.

[1] https://www.theguardian.com/environment/2023/dec/03/back-into-caves-cop28-president-dismisses-phase-out-of-fossil-fuels