Overwhelming in number, underwhelming in quality—current environmental, social and governance (ESG) metrics are inconsistent, can be confusing and at times misleading. If that weren’t concerning enough, perspectives on sustainability reporting are as varied as the stakeholders in the conversation. What is clear is the urgent need to move forward at pace: to shift from talk to demonstrable action and move from a voluntary system to a globally consistent regulated framework.
Investors, employees, contractors, and communities deserve high quality sustainability information that is reliable, relevant, and comparable. This information enables them to make decisions about who to invest in, buy from and work for. If stakeholders are to hold companies to account, they need insight into how an organization is managing its ESG risks and opportunities, and where it stands on its path to a sustainable future.
The good news is that the scale and consequences of this measurement challenge have been recognized. Deloitte Global recently conducted 25 interviews with global leaders from the investment community, business world, academia, and non-profit sector. The perspectives may have been different, but the call for action was unanimous. All agreed on the pressing need to close the gap between lofty ambitions and quantifiable change.
The conversations identified six conditions needed to catalyze the adoption of sustainability reporting and to create a broader operating environment conducive to widespread behavior change.
Adopt a globally consistent baseline.
Calls for the continued development and adoption of common standards by the International Sustainability Standards Board (ISSB) were consistent among global leaders. This could dramatically reduce fragmentation, complexity, and cost. The goal is not to establish a complete set of standards on all sustainability topics from day one. An initial shortlist is needed with clarity around disclosures and timeframes, with more metrics added over time. Continued support for the ISSB to expedite the development of these standards is paramount.
Ensure data is relevant and reliable.
At the heart of any reporting improvement is the quality, relevance, and reliability of the data. A BlackRock survey of 425 investors across 27 countries found that 53% of respondents cited poor quality and insufficient availability of ESG data as a barrier to sustainable investing. Further, companies too often can be selective in what they report—cherry picking disclosures and failing to give a fair and balanced view of their efforts and actions. To improve quality companies must factor in investment in new processes and a willingness to deliver an honest narrative of performance, good or bad. Reporting should not be inspired by a regulatory or compliance mindset, but instead be integral to [and reflect] a company’s business model and strategy.
Integrate sustainability into business models.
Another recent Deloitte Global survey revealed that only 52% of audit committee respondents believed their companies had the information, capabilities, and mandate to fulfill their responsibilities with respect to climate change. The survey highlighted that the sustainability mindset must be embraced throughout the organization from the C-suite down. This can be further enhanced through employee training, executive incentives linked to sustainability outcomes, and a redefined governance structure. Moreover, this should be seen as a business opportunity: a strategic exercise rather than a compliance one.
Establish policy interventions and legislative change.
Market forces alone cannot deliver the scale and magnitude of change needed. Collaboration between the public and private sectors is crucial. This means acknowledging the need for policy interventions and mechanisms of enforcement to eliminate greenwashing and fraud. Financial services, such as banking, insurance, and pension funds, have a key role to play in accelerating change, both in funding sustainable initiatives and in not financing high emission ventures. Supporting these changes requires a stick and carrot approach with widespread tax and subsidy reforms.
Empower stakeholders through transparency and simplicity.
Dialogue must be two-way, and not limited to once a year. Sustainability information needs to be tailored and targeted since stakeholders (e.g., investors, customers, suppliers, and employees) are varied in their needs and knowledge. Educational tools could help stakeholder groups navigate what is most relevant to them. And long-term plans should be pegged to regular progress reports to ensure they’re kept on track.
Drive change holistically rather than in siloes.
The pace of transformation needed requires a coordinated approach between sectors and industries and throughout supply chains. One company can only do so much. System-wide engagement with industry peers committing to accountability can drive rapid behavioral change. Government, large business, and broader society must work together to achieve their shared sustainability objectives.
These six conditions born out of 25 interviews can dramatically improve transparency, sharpen crucial decision making, and help drive system-level behavior change. Sustainability reporting is not an end to itself, rather it’s about creating an environment conducive to positive change, helping companies accelerate their path to prosperity and improve prospects for all.
