Southeast Asia is witnessing a rapid increase in sustainability reporting with 500 per cent growth in the number of companies producing reports over the last six years, according to the Global Reporting Initiative (GRI), a standards organisation that helps companies report their impacts.
The region is the biggest and fastest growing market for GRI, but companies can be more efficient and effective in the way they do their reporting, said chief executive Tim Mohin.
Some sustainability reports published today can run into the hundreds of pages, and busy executives may not have time to read them, defeating the purpose of the report, Mohin added.
The former sustainability chief of American chip-maker Intel said sustainability reporting should be concise, timely and relevant to investors, lenders, and insurers.
He explained to Eco-Business what makes a good sustainability report and the four common mistakes made by companies.
What you want really is a concise summary of the fact—what did you measure, what did it change, what are you going to do next. That’s what’s missing in sustainability reportingTim Mohin, chief executive, Global Reporting Initiative
1. Excessively long sustainability reports
Hundred-page reports containing year-old information are not useful to the financial community, said Mohin.
“What you want is a concise summary of the fact—what you measured, what changed, and what you’re going to do next. That’s what’s missing in sustainability reporting,” Mohin told Eco-Business on the sidelines of the GRI Sustainability Summit in Manila, Philippines in October.
Reports should contain information about the company that is relevant and recent. Instead of citing information only from the last fiscal year, companies could choose to include data in the current business year, he added.
Company reports also need to be clear enough for everyone, not just the staff, he said. This is so all stakeholders, including investors and the public, can understand what the company is doing when it comes to sustainability.
2. Reports that are not comparable across companies
Sustainability reports should show how a company is performing in ethics, diversity, environment, health, safety, and social conditions, but it can be hard to put a value to these areas because they are not as quantifiable as financial data, said Mohin, who was also the former head of Apple’s supplier responsibility programme.
This means that companies use their own metrics to report impact, making it impossible for readers to compare performances across companies fairly.
“The ability to compare one company against another, one industry against another tends to be lacking in today’s reporting,” said Mohin, who highlighted Taiwan’s reporting practices as exemplary.
Taiwan requires companies to produce reports according to GRI’s reporting framework, which ensures that the documents will be comparable between companies.
“If you do not make regulation specific, then you get an uneven mix of disclosures. Taiwan is very prescriptive on what [and how] companies should report,” he said.
A report published in May by leading Taiwanese think tank CSRone Reporting revealed that 73 per cent of the 143 local companies that do sustainability reporting had started compiling their data even before reporting became mandatory. The earlier a company starts to collect information on its sustainability performance, the more data there is for comparison, noted Mohin.
3. No scenario planning
Sustainability reporting should not only look at what a company has done in the past financial year, but also its risk and sustainability strategies for the year ahead, said Mohin.
He suggested that companies adopt the Task Force on Climate-related Financial Disclosures’ (TCFD) recommendation on scenario planning, which encourages companies to examine how their business will be affected by a 2-degree Celsius increase in temperature using its voluntary framework. The Paris Agreement aims to keep global warming to two degrees Celsius or below.
This is the first time organisations have been asked to predict the risks of climate change on their business, said Mohin.
4. Lack of focus on governance
Another common mistake is that reporting companies tend to focus heavily on the environmental and social aspects of environment, social, and corporate governance (ESG) strategies at the expense of governance criteria.
Governance deals with a company’s leadership, executive pay, audits, internal controls and shareholder rights.
“Everything from compensation procedures to how a company does its sustainability initiatives happens because of its governance. It is critical to how a company is run,” said Mohin, and encouraged firms to spend more time looking at their operations and set-up.
Mohin said good governance is demonstrated by a balanced board of independent directors, and having whistleblowing policies in place for employees.