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Insights 1 Aug 2017

As New Reporting Frameworks Emerge, A Focus on Transparency Prevails

By Sarah McElroy

According to the Governance & Accountability Institute, 81% of companies listed on the S&P 500 published sustainability reports in 2016.

The universe of relevant reporting developments continues to evolve, influenced by the establishment of the UN Sustainable Development Goals (SDGs) and the emergence of integrated reporting and Sustainability Accounting Standards Board (SASB) standards. Consequently, companies are not only advancing their reporting strategies to align with new frameworks and sources of inspiration, but they are increasingly encouraged and able to be transparent about the wider impacts of their business.

New trends and reporting frameworks are also seeing adoption, most notably in alignment with the UN Sustainable Development Goals (SDGs).

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Included in this evolution are some important updates to prominent standards bodies such as the Global Reporting Initiative (GRI) with the release of the GRI Standards to replace the G4 Guidelines, and the continued increase in the number of companies reporting to CDP, which reached 5,800 in 2016. Additionally, the Sustainability Accounting Standards Board (SASB) standards will be ratified this fall, providing a consistent way for public companies to voluntary report financially material sustainability information in mandatory financial filings. Despite the continued popularity of these standards bodies (GRI is still the most widely used globally), new trends and reporting frameworks are also seeing adoption, most notably in alignment with the UN Sustainable Development Goals (SDGs) and the practice of integrated reporting.

The SDGs came into force in 2016 and, according to SustainAbility’s recently released report, Evaluating Progress Toward the Sustainable Development Goals, many companies have been inspired by and are using the SDGs in a variety of ways such as developing products or services that support the SDGs and using the SDGs as a lens for setting internal goals and strategies. GRI is also partnering with the UN Global Compact through Reporting on the SDGs to align on this important topic and advise on expected corporate disclosures on the SDGs. Examples of companies using the SDGs in reports include Ford, Cisco, and Nestlé.

The transition to integrated reporting can be complex and is often a continual process.

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Having emerged over the past decade, integrated reporting aims for corporate reporting to tell a comprehensive story of value creation, combining two traditionally separate reports – annual financial reports and sustainability/corporate social responsibility reports. The International Integrated Reporting Council (IIRC)’s Integrated Reporting <IR> Framework has experienced much greater uptake in countries like Japan, the UK, South Africa and Brazil than in the US, partly thanks to stock exchanges recommending or mandating integrated reporting. The World Business Council for Sustainable Development’s Reporting Matters 2016 found that 13% of the 163 reports it reviewed were self-declared integrated reports. The new IIRC CEO, MEP Richard Howitt, will push for greater adoption in 2017.

Insights from SustainAbility’s 2015 report, Sustainability Incorporated, show that the transition to integrated reporting can be complex and is often a continual process. Companies that have created integrated reports claim that the process has internal benefits such as better understanding of value creation, and greater collaboration between previously unconnected functions. In the shift from traditional sustainability reports to integrated reports, less detail may be included on sustainability-specific topics than what stakeholders might want or be used to seeing. However, companies often correct for this by including an addendum with additional sustainability detail or posting that information in other places like a website or microsite.

While the strategies behind sustainability reporting are elevated by more integrated ways of thinking and the formats in which companies offer this information is advancing, there remains one constant: the emphasis on ever-increasing transparency. This is mostly driven by the need to remain accountable to stakeholders. For example, investors are increasingly requesting transparency around sustainability issues, and NGOs request transparency to draw attention to harmful business practices. Due to these factors and growing media awareness, businesses want to prove that they are socially and environmentally responsible. As such, the intention to increase disclosure of company strategy and operations and how they impact the world, both positively and negatively, remains monumentally important.

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