Climate change, sustainability and ESG factors; is increasingly on the agenda at corporate board meetings. As managers measure their corporate sustainability performance through sustainability reports and sustainability ratings, they are faced with constantly changing and varying standards. Because of these uncertainties, companies have to deal with inappropriate and inaccurate sustainability reporting and greenwashing.
In this article; We will describe the sustainability reporting matrix that will help sustainability managers focus on sustainability reporting standards and ratings that are most closely aligned with their strategic needs and stakeholders' information needs.
Determining the Scope of the Sustainability Report
It can be difficult for managers to decide which metrics to use when making corporate sustainability reporting. Some companies report only their environmental analysis such as greenhouse gas emissions, while others publish comprehensive reports on CSR (corporate social responsibility) initiatives or use ESG (environment, social and governance) ratings in detail. However, most managers know which standards or metrics; There is uncertainty about where, when and how to use it.
In recent years, sustainability reporting has become very important and popular, especially for corporate companies. But there has also been a lot of choice in sustainability reporting standards and ratings. Election plethora can be dangerous for managers. With so many different and varied options, companies; faces the risk of not meeting the expectations of customers, investors and employees. In addition, disclosure of certain information with sustainability reporting should be especially evaluated whether it is correct for companies.
A sustainability matrix was developed to categorize different sustainability reporting standards and ratings. By categorizing all available reporting and rating options in terms of the details of the topics they cover and their target audiences, a sustainability reporting approach will be defined that suits the needs of the company and its stakeholders.
Sustainability Reporting Standards
Sustainability reporting refers to the information that companies provide about their sustainability performance in a structured way on a regular basis. Sustainability ratings provide a summary indicator of a company's performance.
There are at least seven well-known sustainability reporting frameworks and standards, all of which are trusted and recognized by international organizations and executives:
CDP – Carbon Disclosure Project
CDSB – Climate Disclosure Standards Board
GRI – Global Reporting Initiative
IIRC – International Integrated Reporting Council
SASB – Sustainability Accounting Standards Board
TCFD – Taskforce on Climate Related Disclosures
WEF IBC – World Economic Forum International Business Council
Each sustainability reporting standard deals with a different topic and appeals to different audiences, from narrow (for example, a specific focus on greenhouse gas emissions) to broad (covering the entire ESG or the entire UN Sustainable Development Goals (SDGs). From a narrow target stakeholder group; They have scopes that range from broader groups to investors, customers, employees, and society at large.
Using this matrix, managers can see that if they want to report on the specific risks that climate change presents to their financial results, they can choose to use either CDSB (a specific standard) or TCFD (a broader framework). Companies wishing to report on a wide range of topics (such as the company's contribution to the UN Sustainable Development Goals) can use SASB and IIRC.
The CDP, located at the top left of the chart, focuses on a company's impact on its greenhouse gas emissions. CDP; It allows companies to report on climate impacts on climate, water and forests, typically based on the GHG Protocol. Companies that want to report on environmental and social issues in a more comprehensive way; May use GRI or WEF IBC. GRI is the world's most widely used sustainability reporting standard. WEF IBC provides some comparability between the two by matching its metrics to GRI standards.
Sustainability Performance Rating
The sustainability rating provides an independently determined and standardized summary indicator of sustainability performance based on a specific set of criteria. These ratings are usually requested and met by the rating agency. Ratings play a facilitating role to compare firms' performance over the years.
To make it easier to decide which ratings to adopt, companies must first choose whether they need a rating that focuses only on environmental aspects or whether they need broader coverage such as ESG issues. In line with this, companies need to decide whether they want a rating that targets only investors or a broader set of stakeholders.
At the bottom left, companies wishing to issue bonds for projects that comply with the Paris Climate Agreement's greenhouse gas emissions trajectory can work on green bonds. The Climate Bonds Initiative is the parent agency that certifies green bonds on the basis of a verification usually conducted by approved third parties.
At the bottom right, ESG ratings published by major global financial rating agencies and information providers generally measure the quality of a company's disclosure of information in light of ESG factors, or the risk companies face in ESG-related matters. Companies that transparently disclose ESG information are often perceived as less risky and investments are less risky in the eyes of financial institutions.
In the upper half of the matrix, there are several ratings that communicate with a wide variety of stakeholders. Science Based Targets verify whether institutional greenhouse gas emission reduction targets are in line with those of the Paris Climate Agreement. Similarly, green building ratings (such as LEED and BREEAM) communicate the sustainability characteristics of buildings and communities to a broad audience. Other ratings, such as EcoVadis's supplier ratings, evaluate corporate performance in a broader context, including environmental and social.
Measuring, reporting and managing a company's sustainability performance; It has a major impact on corporate performance, reputation and risk. Choosing the right reporting approach is crucial as companies move towards net zero goals.
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Source: hbr.org