Without government regulations requiring businesses to disclose their sustainability practices, companies are left with the choice on how, and if, they will report their measures.
Sustainability has quickly become a top consideration for investors. The World Economic Forum reported that the top four medium-term risks for 2024 were all environmental, including extreme weather events and natural resource shortages, and investors are looking to see how businesses plan to address those risks.
The issue is that, currently, there is no universally accepted method for reporting and measuring sustainability practices, meaning itās up to individual businesses to decide how to proceed. And while some are rising to the occasion and voluntarily applying regulatory recommendations, others are choosing to back away from reporting altogether.
Voluntary trendsetters
While it isnāt currently required by law, hundreds of companies have volunteered to measure and report their impact on our Earth, recognizing the growing harm of business operations on the environment.
Sustainability advocates are hoping these trendsetters will encourage other companies to increase their efforts – and encourage investors to put their money towards sustainable measures.
Valentin Alfaya, Sustainability Director of Ferrovial, recognizes that focusing on environmental impact presents both an opportunity and a risk for businesses and investors. For companies that deal heavily with protected areas of great ecological value, it can be risky in terms of reputation, operation, and finances.
Yet, Marisa Drew, Chief Sustainability Officer at Standard Chartered, believes the reporting also presents a āsignificant opportunity ā¦ to facilitate financial flows toward nature-positive outcomes.ā The hope is that as more companies begin to report their sustainability practices in a standardized way, investments will steer towards environmentally positive outcomes.
Choosing silence
Despite some companies taking on the challenge and risk of disclosing their sustainability practices, and amid rising scrutiny over sustainability reports, some companies have decided itās no longer worth it to publish their measures.
In a study done by South Pole, almost half of the 1400 companies surveyed said it had become harder to communicate their climate goals compared to a year earlier. More people are paying attention to sustainability reports than ever, but without a standard baseline of what to include and how to measure your actions, the risks can end up outweighing the benefits. Both investors and consumers are looking into sustainability measures as a decision-making tool, and if they donāt like what they find, it can negatively affect a business. That risk is leading hundreds of formerly āclimate-consciousā companies to choose not to publish their reports.
This shift also comes after some companies were caught making exaggerated claims of their sustainability goals and accomplishments in an effort to keep investors happy. This practice, dubbed greenwashing, has led authorities in the U.S., Australia, and the European Union to pay more attention to the claims and crack down on these businesses. The prospect of harsher guidelines has also been reported as a reason to stop disclosing, as businesses want to avoid getting called out for inflated claims and promises.
Emergence of disclosure recommendations
Businesses that are choosing to step away from sustainability reporting need the support and trust that a high-quality, comprehensive global standard for reporting would provide them.
COP 15 in 2022 saw almost 200 countries sign the Kunming-Montreal Global Biodiversity Framework, an agreement that sets a path for governments to introduce laws and policies that will require large companies and banks to disclose and reduce the damage done to the environment by their operations, supply chains, and portfolios by 2030. While our governments are working to create those laws, some organizations have already released sets of recommendations for businesses to follow, and possibly for governments to adopt.
One such organization is the Taskforce on Nature-Related Financial Disclosures (TNFD). It provides a set of disclosure recommendations for businesses to report and act on their evolving nature-related dependencies, impacts, risks, and opportunities. Itās based on four disclosure pillars (Governance, Strategy, Risk & Impact Management, and Metrics & Targets), and enables businesses to integrate nature into their decision-making.
Another organization working to create standardized recommendations for sustainability disclosure is the International Sustainability Standards Board (ISSB). In June of 2023, the ISSB released its first two disclosure recommendations. The first provides a set of requirements for companies to communicate to investors the risks and opportunities they face over the short, medium, and long term. The second sets the requirements for disclosing information about its climate-related risks and opportunities.
Both sets of recommendations are purely voluntary, but they set a baseline for sustainability reporting that, if adopted globally, could lead to increased transparency and trust for investors and set businesses on the path towards a nature-positive future.
More action is needed
While itās clear that a standardized form of measuring and reporting on sustainability measures will be a step in the right direction, itās also important to note that simply reporting on the damage done to the environment isnāt the same as stopping it, as said by John Tobin-de la Puente, a professor of corporate sustainability at Cornell University. Disclosure is more about giving investors clear information on risk than it is about encouraging companies to change, and there is more work to do on that front.
The trends seen so far this year, and their opposite spectrums, demonstrate a strong need for regulated sustainability reporting and measures. Public and investor opinion is no longer enough, and government action is required to lead us to a brighter, and greener, future.
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Colleen Douglas
Senior Marketing Coordinator
Executive Platforms
Colleen joined the Executive Platforms team in May of 2022. She has five years of experience in event marketing, with an emphasis on copywriting and digital strategies.
Colleen has a BA Honours in Business Communications from Brock University and a Diploma in Digital Media Marketing from George Brown College.