Public expectations of the private sector have shifted in recent years, with greater emphasis being placed on corporate purpose beyond profit. Investors are increasingly requesting sustainability performance data, and pressure is increasing for companies to show the connection between sustainability and financial performance.
As we look out to the next three to five years, we see a range of trends that will continue to drive momentum for the alignment of sustainability and financial transparency. Below are six trends that will shape the field in years to come.
1. Drivers of alignment of financial and sustainability reporting will continue to gain momentum
We expect that government and stock exchange regulation will rise, following the trajectory it has been on for the last several years. This will affect not only how companies report but how investors engage with corporations. Mainstream investors will continue to integrate ESG in their decision-making, some voluntarily and some due to increasing regulation. Overall, there will be greater scrutiny of companies’ reporting by investors and others.
2. Framework complexity will continue to pose challenges but increasing overlap will help reporters navigate the landscape
Although the ratings and rankings field is messy now in part because there are so many frameworks, we are seeing some harmonization. As one of the newest frameworks, TCFD is being incorporated into others, and the Corporate Reporting Dialogue is pushing for greater alignment between all frameworks. We encourage frameworks, standards and ratings agencies to streamline metrics to enable corporate practitioners to focus efforts on fewer metrics and reduce the burden of transparency efforts.
3. Climate will be an early issue to mature and others will follow
Climate change has been at the forefront of corporate and investor focus due to the risks it presents to our economy — and to the wider society and planet. Regulations at the regional and global levels related to climate change disclosure have increased by 90% in the last 10 years and will likely continue this upward trend.
Diversity & inclusion will also be in the spotlight due to the growing evidence of its impacts on business performance. Other issues that are likely to gain momentum are health & safety, human rights, employee engagement and water.
4. Greater emphasis on context and impact will raise expectations for corporate transparency
Metrics for most sustainability topics have not been established and accepted, and various definitions of “good enough” raises challenges. Although the SDGs provide an agreed-upon context for sustainable development that companies can use to assess their business models, stakeholders will demand a greater focus on impact going forward. Emerging benchmarks, such as Future-Fit Business Benchmark and the Science Based Targets initiative, will help define global context and hold practitioners accountable.
5. Assurance of data and qualitative information will become the norm
As sustainability information becomes further aligned and embedded within financial transparency, it will be expected to be presented with the same rigor as financial transparency. As a result, wider third-party verification will become table stakes for credibility.
6. Technology will play a critical role in data collection and analysis
Technology will revolutionize the way sustainability reporting is reviewed and compiled. Developments such as artificial intelligence, big data and blockchain will make possible new achievements such as tracking sustainability data related to supply chains, providing accurate measures of performance based on global standards and automating aspects of report production.
These trends are based on events and behaviors we’re observing now. By providing greater visibility into corporate strategy and performance, businesses can enable more informed stakeholder decision-making. Ultimately, those decisions have the power to reward businesses that do most to drive sustainable development and support construction of a future where the interests of the economy, society and the planet are all aligned.
To read more on future trends and gain insight into the benefits and obstacles of aligned transparency, read The Art of Alignment: Sustainability & Financial Transparency.