By Wadzi Katsidzira

The days when sustainability was merely nice for an organisation to have and photogenic environmental and social programs were adequate evidence of commitment have long gone.

Today stakeholders expect the organisations they buy from, trade with, own shares in and work for will act, measure and report on their sustainability practices. And these expectations will soon be codified, with mandatory reporting requirements for sustainability likely on the way. As we race toward net-zero, momentum on environmental, social and governance (ESG) accountability will accelerate.

It may be tempting for organisations to treat these sustainability reporting obligations as a compliance burden. But effective organisations are seeing how they can use this shift as a catalyst to become more sustainable.

Formal expectations for disclosure are growing

Earlier this year, the International Sustainability Standards Board (ISSB) published exposure drafts for disclosure of sustainability-related and climate information.[1] Industry leaders in Australia[2] and abroad have welcomed the publication of the exposure drafts because they will bring consistency and comparability to climate reporting. The draft standards signal where the market is going – toward valuing sustainability metrics in financial reporting.

The impetus for action is also coming from the European Union as it finalises a proposal for the Corporate Sustainability Reporting Directive (CSRD), which will replace and significantly expand the requirements for non-financial reporting. Under the CSRD proposal, companies will need to disclose their ESG strategy, policies, targets, risks and indicators relating to areas including climate change, biodiversity, workforce, supply chain, community, end users of their products or services, and business conduct.[3]

The standards have implications for organisations outside the EU, including in Australia. They reflect a broadening of the conception of sustainability to include linkages between ESG outcomes, a social licence to operate, and a just transition.

There are five actions every organisation can take to get ready

Wherever the final standards land, greater transparency is inevitable. Robust sustainability reporting will require more planning and execution rigour than is currently in place for many organisations.

With a window of time until new rules commence, the time to act is now. We have identified five actions every organisation can take to get ready:

1. Understand the existing landscape of voluntary and mandatory requirements. With several standards and frameworks for climate and sustainability disclosures, it can be confusing to navigate them. Helpfully, the proposed ISSB standard incorporates many recommendations from the Task Force on Climate-related Financial Disclosures (TCFD), whose voluntary framework has already been adopted by many companies. This points to a convergence among key global players. Getting a grasp of existing standards and mapping your own organisation’s existing sustainability measurement and reporting is a good first step.
2. Connect with all your stakeholders on sustainability. An organisation’s sustainability reflects the organisation’s impact on the environment and society, and also how the organisation is impacted by external factors. So your customers, employees, suppliers and shareholders, as well as government, are all likely to have a view on your sustainability strategy. Find ways to capture that view, then reflect it in your strategy at initiation and during implementation. Case studies and impact metrics from your customers, community and suppliers will likely be data points required for your sustainability reporting.
3. Develop a board-approved plan of action. An organisation should elevate decision-making and strategy on sustainability to the board and senior management level. This is because sustainability is inherent in your business model; it is no longer just about corporate social responsibility or managing environmental risks. Your ESG approach has material financial, legal and reputational implications, so early planning should reflect an ambition level on ESG that aligns with broader goals and objectives.
4. Set targets and be clear how you will evaluate progress. The global sustainability standards will enable comparability and consistency across organisations, and organisations can expect to be held to account on their published targets by their staff, customers, shareholders and the public. So it is vital to set realistic targets and be clear on how these targets will be measured. Some targets will require complex quantitative measurement, while many others will be evaluated using qualitative methods. Building a good evaluation approach and setting up ongoing dashboards allows your organisation to track its progress.
5. Get the right team together to implement. Sustainability will impact every part of your organisation and requires more than the compliance, risk management and community engagement skills that have been sufficient in the past. Executive-level accountability on sustainability with a multidisciplinary team executing and co-ordinating ensures a comprehensive and relevant sustainability approach.

There is an urgent need to act

The pace of change on reporting requirements means that eventually organisations may be as accountable for their sustainability performance as they are for their financial performance.

Documenting sustainability performance encompasses more than just reporting on emissions or environmental transition; it also includes disclosures on social outcomes, community engagement and stronger governance.

The sustainability standards are likely to be finalised soon and will herald a new era in disclosure and action. Organisations need to act now or risk being left behind.

Get in touch to discuss how we can help you prepare for greater sustainability disclosure.

Connect with Wadzi Katsidzira on LinkedIn.

Prepared with input from Jacob Kerspien and Tom Morgan.

Published on 26 October 2022.

[1] International Sustainability Standards Board (2022). “Exposure Draft and comment letters: General Sustainability-related Disclosures”

[2] Chartered Accountants (2022). “Major consensus reached on Australian climate risk reporting”

[3] European Commission (2021). “Sustainable finance package: Proposal for a Corporate Sustainability Reporting Directive (CSRD)”