Navigating the evolving sustainability disclosure landscape
Growing demands for greater transparency
During the past few decades, the primary drivers of business value have shifted significantly. Formerly, capital market performance most closely tracked an organization’s tangible assets. But today’s markets are more strongly correlated with intangible assets in the form of goodwill or brand equity, which can include research and development, brand, reputation, management of external social and environmental factors, and social license to operate. Historical financial metrics do not effectively capture a company’s long-term value creation potential, but rather serve as indicators of short-term performance. This shift in value drivers and a broader recognition of the importance of environmental, social, and governance (ESG) performance have been accelerated by market forces demanding that companies provide greater transparency around this topic. In addition, there has been an increase in initiatives to promote and, in some instances, enforce more structured ESG reporting.
Standardization and uniformity
ESG or sustainability disclosure continues to evolve to meet increasing demands for greater standardization and uniformity with respect to how organizations account for sustainability risks and opportunities that matter most to their operational and financial performance. A central focus for many organizations is determining their material sustainability impacts and prioritizing sustainability management efforts and reporting programs. Managing and disclosing performance around material sustainability impacts in accordance with recognized reporting frameworks demonstrates management’s commitment to providing credible, reliable, and meaningful information to its stakeholders. In line with increasing demands for transparency and the focus on materiality, we discuss the evolving landscape of sustainability standard-setting and reporting initiatives.
Providing reliable information
Sustainability reporting has grown over the past few years. As a result, the relevance and reliability of sustainability information is becoming increasingly important. Users of business information rely on companies to communicate relevant financial and non-financial information. While entities regularly provide such information to influence decisions, it is not enough to merely provide information. Decision-makers using that information must have confidence that it is reliable. As compared to financial data, different functions within an organization may own certain aspects of the non-financial data. Therefore, the quality of this information may vary, particularly if aggregated among various subsidiaries, facilities, etc. Internal audit and other compliance activities within an organization can help validate sustainability data before it is reported to stakeholders. These activities serve as important steps toward positioning the organization to obtain external assurance on sustainability reporting.