During the Climate Conference (COP26) in Glasgow, 120 world leaders gathered to discuss the urgency of acting on climate change. It became clear that we have a joint responsibility to address climate change to preserve the planet for future generations, with many countries aiming to reduce their carbon footprint significantly before 2030, and to have zero emissions by 2050. The key messages that came from the conference were clear: there is still a lot of work to do, and the time to act is now.
Sustainability reporting refers to reports published by companies on their non-financial information related to Environment, Social, Governance (ESG) factors.
While such reports will naturally take time and effort to prepare, there are significant benefits to businesses including sustainability reporting as part of their annual report. Businesses will gain valuable insights into their own sustainability performance and be able to use such information to make informed strategic and risk-related decisions. In addition to this, more investors are considering ESG information in their investment decisions. Research conducted by PwC in 2021, which involved 325 global investors, saw that 79% of investors look at the way that a company manages ESG risks and opportunities as a key consideration in their investment decision. This information enables investors to align their investments, based on their own values and goals.
Other benefits of sustainability reporting include:
- Improving the company’s reputation amongst investors and employees;
- Avoiding potential financial repercussions by being aware of the environmental footprint of their activities, and allowing them to anticipate potential risks in the future;
- Being more in demand with investors or employees looking to invest in sustainable companies.
New legislation changes related to sustainability reporting
Legislation surrounding sustainability reporting is set to become stricter in the coming years. While there is not one global, standardised sustainability reporting framework, unions/regions have introduced new directives or adopted existing directives that their member states need to comply with.
In the European Union, the Non-Financial Reporting Directive (NFRD) was implemented in 2017. This directive did not make it mandatory to report on ESG data but highlighted the rules on disclosure of non-financial and diversity information by certain large companies. The European Commission is due to replace NFRD with the new Corporate Sustainability Reporting Directive (CSRD). The CSRD will make it mandatory for companies to report on ESG as part of their annual, auditable report. The purpose of the CSRD is to have comparable, quality data and transparency regarding the environmental and social impacts of companies.
In the United Kingdom, the Task Force on Climate-related Financial Disclosures (TCFD) was officially introduced earlier this year. The focus of the TCFD is to report on an organisation’s impact on the global climate. By making climate-related disclosures more consistent and comparable, the TCFD aims to empower companies to make better strategic and risk-related decisions. TCFD recommendations are not only being implemented in the UK – Switzerland, New Zealand and Hong Kong are set to incorporate these climate-related disclosures as part of their disclosure requirements over the next few years.