COVID-19 and shifted thinking about sustainability reporting
Nino Kvantrishvili, Senior Manager, Sustainability and Partnerships, Global Compact Network Georgia
A good report can be a reason to buy a company, and a bad one can be a reason to sell. When asked how he became so successful in investing Warren Buffett answered: “we read hundreds of hundreds annual reports every year.”
The world in the era of COVID-19 has become a stage for a real time stress test for businesses, governance constructs and our normal ways of life. The pandemic has stimulated and forced institutions and leaders to rethink and reimage their visions of success. Certain business models may no longer work, while opportunities may arise in new ways of doing things.
In post COVID-19 world, sustainability reporting would be more vital and bring renewed attention to the importance of corporate transparency on sustainability issues to sustain trust among all stakeholders. Investors and other stakeholders need to be kept updated and this update can be non-financial (sustainability) reports, which considers longer-term strategic matters. Sustainability reports are a useful medium and an opportunity for companies to lay out their plans and strategies for bringing the company forward. While managing COVID19’s direct impacts remain the top priority for many companies, reporting historical ESG (Environmental, Social and Governance) data and performance remains essential, with the expectation that their performance on key social issues will be even more thoroughly examined than usual, as the COVID-19 crisis is placing heightened importance on social matters.
Truthful and timely communications are more important now than ever. A sustainability report is the main tool available for an organization or company to voluntarily communicate its performance and impact — positive or negative — in environmental, social and governance (ESG) matters. Sustainability reports help companies to engage more deeply and effectively with all their stakeholders (investors, employees, market regulators, suppliers, civil society, customers, etc.,) by considering their impacts on a wide range of sustainability issues. This enables them to be more transparent about the risks and opportunities they face. Increased transparency leads to better decision making, which helps to maintain trust in businesses and governments.
Stakeholders can then benefit from a broad understanding of the company’s responses. First of all, keeping stakeholders informed is important to define how companies are responding to crisis now and how companies should respond in the future. Companies will need to explain decisions made during this time and make forward-looking statements about how they plan to help build a better future. That’s why sustainability reports will become an essential information for accountability to understand company actions during the COVID-19 pandemic.
A sustainability report is not just a 100 page long document. The goal is to make it tangible, as it helps to understand an organisation’s strategy, set goals, measure performance and manage the change towards a sustainable business model. Moreover:
Companies based in the European Union are obliged to disclose non-financial information (EU Directive 2014/95, also called the non-financial reporting directive (NFRD). EU law requires large companies (more than 500 employees) to disclose certain information on the way they operate and manage social and environmental challenges. Under Directive 2014/95/EU, large companies have to publish reports on the policies they implement in relation to environmental protection; social responsibility and treatment of employees; respect for human rights; anti-corruption and bribery; and diversity of the management (in terms of age, gender, educational and professional background).
Moreover, importance of the sustainability reporting is mentioned in Sustainable Development Goals (SDG 12,) as well. It encourages companies, especially large and transnational companies, to adopt sustainable practices and to integrate sustainability information into their reporting cycle.
Also, 21 principle of the UN Guiding Principles on Business and Human Rights (UNGPs) states: “The responsibility to respect human rights requires that business enterprises have in place policies and processes through which they can both know and show that they respect human rights in practice…Communication can take a variety of forms, including in-person meetings, online dialogues, consultation with affected stakeholders, and formal public reports. Formal reporting is itself evolving, from traditional annual reports and corporate responsibility/sustainability reports, to include online updates and integrated financial and nonfinancial reports…The reporting should cover topics and indicators concerning how enterprises identify and address adverse impacts on human rights.” The UN Guiding Principles uncovers the places where you need to focus and improve, so that it becomes very clear what you need to do.
More companies are reporting their sustainability activities and demonstrating their commitment to the SDGs, says the UN SDG Progress Report 2020. “Since 2017, the overall quality of sustainability reports has improved around the world. The share of reporting in the environmental, social, institutional and governance dimensions is aligned with the minimum requirements outlined in SDG indicator 12.6.1, and (the number of companies publishing sustainability reports) has almost doubled.”
A unified standard that allows reports to be quickly assessed, fairly judged and simply compared is a critical asset. As firms worldwide have incorporated sustainability reporting, the most widely adopted framework has been the Global Reporting Initiative (GRI,) Sustainability Reporting Framework and United Nations Global Compact’s Communication on Progress.
Companies that have a clear and effective approach to ESG stand out. As such, sustainability can play an important role in driving investment to the continent, and attracting the long-term capital it needs. “We must continue to make a real contribution to people’s lives. We can only do this by keeping our approach to sustainability at the heart of the way we do business”- states CEO of Shell, Ben van Beurden in the sustainability report of 2019. “Apple’s” sustainability report details how the company approaches its priorities and highlights the progress they made. “Our goal is to make not just the best products in the world, but the best products for the world.”
More and more companies are writing Sustainability Reports. Nowadays, companies have an ethical obligation to practice sustainability reporting and investors have a similar obligation to demand it. As we all strive to find best solutions for the planet and people, its prosperity and peace, we need to take responsibilities of our actions. We need to disclose information on sustainability issues and we need to strive to achieve UN Sustainable Development Goals until 2030. We can’t do it without responsible companies and the role of the sustainability reporting is to make sure that companies are part of the process.
Nowadays, everyone in the world is aware of how the world can change overnight and companies need to understand that sustainable reputation plays an important role in brands awareness, stakeholders satisfaction and customer loyalty, factors that contribute to revenue growth.