In a world where ‘business as usual’ is increasingly being called into question by environmental and social risks, such as climate change, resource nationalism and community unrest, companies are looking to provide more clarity on their approach to environmental, social and governance (ESG) risk and opportunity management and to adequately articulate how they control their impacts. However, without one specific international sustainability reporting framework or set of guidelines, companies often find themselves unsure of the optimal ways of presenting information.
Here are some of the key questions that management teams can ask themselves when looking to address demands from investors, communities, governments, NGOs and other stakeholders for increased levels of transparency, communication and reporting on sustainability practices:
What are our most material issues?
Materiality has long been the focus of financial reporting and is also essential in the sustainability context. It enables report readers to properly understand a company’s most important issues and impacts as well as enabling a deeper understanding of the key ESG risks and opportunities.
Companies use a number of different approaches to define their material issues. One widely used approach bases itself upon the Global Reporting Initiative (GRI) Standards, which define a material topic as one which:
Reflects the organisation’s significant economic, environmental and social impacts; or
Substantively influences the assessments and decisions of stakeholders.
Whilst there is no standardised method of assessing materiality and most companies use a combination of internal and external factors, a full stakeholder engagement process is a valuable way of ensuring an inclusive and comprehensive approach.
Many companies are using the materiality assessment as a more strategic tool to better understand enterprise risks through the lens of sustainability. A useful exercise for companies considering their most important ESG issues is to map them against their principle business risks or, even better, to align and integrate the two processes.
Once the most material issues have been identified, a process of prioritisation is required to enable the reporter to focus on the relative priority of each issue.
Who are our main stakeholders and how do we engage with them?
In order to communicate effectively on ESG matters, it is important to have a clear understanding of different stakeholder groups, an appreciation of the information required by each group and an awareness of how they wish to receive it. Some examples of questions to consider would be as follows:
Which sustainability indicators inform shareholder investment decisions? Which data services do the company’s key investors use? Do they access ESG data via Sustainalytics? Do they use MSCI ESG Ratings?
Do industry bodies require reporting to be verified / assured and if so, to what level?
How do the requirements of government representatives differ depending on jurisdiction and how can we best ensure a collective comprehensive view of the company’s activities and impacts?
How will local community members access sustainability reporting? Will they read the report online or would it in fact be more appropriate to use social media or physical notice boards as a tool for disseminating key aspects?
Building and maintaining trust amongst stakeholders is paramount to the success of a project and/or business, particularly with regards to the ‘licence to operate’. Therefore, a thoughtful, transparent and open engagement process is beneficial in strengthening stakeholder relationships as well as in defining materiality in the sustainability context.
Whether or not a full stakeholder engagement process can be conducted as part of the materiality assessment from the outset, without a proper understanding the company’s stakeholder environment, there is a risk of omitting key elements in reporting which jeopardise its balance and impact, thereby limiting its benefit and increasing the potential for negative stakeholder reaction.
How is sustainability embedded in our business model and how does our strategy address material ESG issues?
Companies have often been accused of ‘greenwashing’ when it comes to sustainability communications. We would argue that sustainability cannot and should not be considered in isolation from the rest of the business. For a company to achieve a broader purpose which benefits all stakeholders, sustainability needs to be fully integrated into the business model and strategy. This then allows the company to provide a holistic and comprehensive view of the value it creates, the ways in which it manages its impacts and risks and how it takes advantage of opportunities
The strategic benefits of addressing sustainability and embedding it in the core business are numerous. As an example in the mining sector - innovation in sustainable mining techniques can provide a clear competitive advantage over peers, support a company’s licence to operate (both from a societal and regulatory perspective), enable lower input costs through higher levels of efficiency, and may even provide a reduced cost of capital as a result of better environmental performance (Ambec and Lanoie, 2008).
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CG Communications can assist with your sustainability reporting requirements as well as working with you to ensure that ESG issues are embedded in your business model and strategy to achieve a holistic and meaningful approach to sustainability. Contact us for more information.
Ambec, S. and Lanoie, P. (2008). Does It Pay to Be Green? A Systematic Overview. Academy of Management Perspectives, vol. 22 (4), p.45-62