14.3 Preparing and presenting sustainability reports
5 min read•july 30, 2024
Sustainability reports are crucial for communicating an organization's environmental, social, and governance performance to stakeholders. Preparing these reports involves assembling a cross-functional team, conducting assessments, and collecting relevant data on key topics like emissions, diversity, and community engagement.
Effective sustainability reports integrate quantitative KPIs with qualitative narratives, explaining performance trends and initiatives. They tailor communication to different audiences, use engaging visualizations and storytelling, and enhance credibility through third-party assurance. This approach ensures and relevance in sustainability disclosure.
Sustainability Report Preparation
Establishing a Cross-Functional Team
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- A sustainability report communicates an organization's environmental, social, and governance (ESG) performance, impacts, risks, and opportunities to stakeholders
- Establishing a cross-functional sustainability reporting team with executive sponsorship ensures access to data, resources, and decision-making
- The team should include representatives from relevant departments such as operations, finance, human resources, marketing, and sustainability
- Executive sponsorship demonstrates the importance of sustainability reporting and provides necessary resources and support
Conducting a Materiality Assessment
- Conducting a materiality assessment identifies and prioritizes the most significant sustainability topics based on and impact on the business
- Materiality assessments typically involve research, surveys, interviews or focus groups with internal and external stakeholders (employees, customers, investors, NGOs) to gather input
- Material topics commonly include greenhouse gas emissions, energy and water use, waste generation, employee health and safety, diversity and inclusion, supply chain management, and community engagement
- Collecting relevant data on material topics requires establishing systems, processes, and controls to ensure accuracy, completeness, and consistency
- Data collection may involve utility bills, emissions calculations, human resources information systems, supplier questionnaires, and other sources
- Documenting data sources, assumptions, and methodologies in an internal handbook supports consistency and knowledge transfer
Analyzing Data and Developing Narrative
- Analyzing data to calculate key performance indicators (KPIs), identify trends, and benchmark against industry peers (competitors, best practices) provides valuable context for the report
- Developing a compelling narrative that connects sustainability initiatives to business strategy, values, and goals enhances the relevance and credibility of the report
- The narrative should explain why sustainability matters to the organization and how it creates value for stakeholders
- Case studies or examples can illustrate the tangible impacts and benefits of sustainability programs ( projects, employee volunteer programs, sustainable product innovations)
- Designing an engaging report layout with clear messaging, visual aids (charts, infographics), and navigation improves readability and impact
Scope and Materiality of Disclosures
Defining Report Scope and Boundaries
- The scope of a sustainability report defines which entities, geographies, and time periods are included in the disclosures
- Scope often aligns with financial reporting boundaries, such as wholly owned operations, but may extend to joint ventures, subsidiaries, or supply chain partners (tier 1 suppliers, distributors)
- Scope should enable comparability across reporting periods (year-over-year trends) and peer organizations
- Setting clear organizational boundaries ensures the report covers all relevant entities and avoids double counting or omissions
- Operational control, financial control, and equity share are common approaches to defining organizational boundaries for sustainability reporting
- Establishing consistent temporal boundaries, such as calendar or fiscal year, allows for meaningful trend analysis and goal setting
Determining Material Topics
- Materiality in sustainability reporting refers to topics that substantively influence the decisions of stakeholders or reflect the organization's significant sustainability impacts
- Material topics are often determined based on a combination of stakeholder engagement, strategic priorities, industry standards (SASB, GRI), and impact assessments
- Materiality assessments should be updated regularly (annually, biennially) to reflect evolving stakeholder expectations and business conditions
- Reporting on a focused set of material topics enables a more concise and decision-useful report, while comprehensive topic-by-topic disclosures provide additional context and transparency
- For example, a technology company may focus on data privacy, energy use in data centers, and responsible supply chain management as its most material topics
- A comprehensive report may also include disclosures on employee diversity, community engagement, and political contributions for completeness and transparency
Integrating Sustainability Data
Presenting Quantitative Key Performance Indicators
- Sustainability reports typically include both quantitative data and qualitative narratives to provide a holistic view of performance and impact
- Key performance indicators (KPIs) should be clearly defined, consistently measured, and presented with relevant context such as historical trends, targets, and peer benchmarks
- Common KPIs include carbon emissions intensity, energy efficiency, water withdrawal, waste diversion rate, employee turnover, diversity representation, safety incident rates, and community investment
- KPIs should be disaggregated by business unit, geography, or other relevant factors (product line, facility type) to provide insight into performance drivers and areas for improvement
Explaining Performance through Narratives
- Narratives should explain the significance of KPIs, describe management approaches and initiatives, and discuss challenges, opportunities, and future plans related to material topics
- Case studies or spotlights on specific projects, partnerships, or innovations (renewable energy investments, supplier diversity programs) can make the report more engaging and concrete
- Testimonials from stakeholders such as employees, customers, or community members can enhance credibility and inspire action
- Connecting sustainability strategies and programs to core business activities, value creation, and risk management makes the report more relevant and integrated
- For example, discussing how sustainable product design enhances customer loyalty and market share, or how employee well-being programs improve productivity and retention
- Discussing governance structures, accountability mechanisms, and stakeholder engagement processes demonstrates commitment to sustainability management and transparency
- Aligning disclosures with leading sustainability reporting frameworks such as GRI, SASB, TCFD, or SDGs provides consistency and comparability for users
Communicating Sustainability Information
Tailoring Communication to Audiences
- Sustainability reports should be designed with the target audience in mind, considering their interests, needs, and preferred communication channels
- Key audiences often include investors, customers, employees, regulators, NGOs, and local communities
- Reports may be supplemented by executive summaries, interactive online platforms, social media campaigns (Twitter, LinkedIn), or in-person presentations to reach different stakeholders
Using Effective Visualization and Storytelling
- Data visualization techniques such as charts, graphs, infographics, and dashboards can make complex information more accessible and engaging
- Charts should be clearly labeled, visually appealing, and focused on key insights rather than data overload
- Consistent use of colors, fonts, and imagery creates a cohesive brand identity and aids navigation
- Storytelling techniques such as customer or employee profiles, impact narratives, or future scenarios can make the report more memorable and inspiring
- For example, highlighting how a sustainable product improved a customer's life, or how an employee-led initiative created positive change in the community
- Highlighting key accomplishments, challenges, and commitments upfront in executive statements or introductory sections captures attention and sets the tone for the report
Enhancing Credibility and Engagement
- Including a table of contents, page references, and an index makes it easier for readers to find specific information and understand the report structure
- Providing feedback mechanisms such as surveys, email contacts, or social media links invites ongoing stakeholder engagement and continuous improvement
- Responding to stakeholder feedback in subsequent reports demonstrates responsiveness and accountability
- Obtaining third-party assurance for key sustainability disclosures enhances the credibility and reliability of the report for stakeholders
- Assurance providers may include specialized sustainability consulting firms, accounting firms, or certification bodies (ISO, AA1000AS)
Key Terms to Review (18)
Carbon Footprint: A carbon footprint is the total amount of greenhouse gases, specifically carbon dioxide, that are emitted directly or indirectly by an individual, organization, event, or product throughout its lifecycle. Understanding and measuring carbon footprints is essential for assessing environmental impact and promoting sustainability across economic, social, and environmental dimensions.
Corporate social responsibility report: A corporate social responsibility (CSR) report is a document that outlines a company's efforts to address social, environmental, and economic impacts of its operations. It serves as a communication tool for stakeholders, including investors, customers, and employees, detailing the company's commitment to sustainability and ethical practices. These reports typically include metrics on environmental performance, labor practices, community engagement, and governance policies.
Data visualization tools: Data visualization tools are software applications that help transform raw data into visual formats, making it easier to understand patterns, trends, and insights. These tools enhance the presentation of complex information, enabling stakeholders to grasp the significance of sustainability metrics quickly and efficiently. By converting numbers into graphs, charts, and maps, data visualization tools play a crucial role in effectively communicating sustainability performance and progress.
Energy efficiency: Energy efficiency refers to using less energy to provide the same level of energy service or output. It is a key concept in reducing energy consumption, lowering greenhouse gas emissions, and decreasing energy costs, which connects deeply with sustainable practices. Improving energy efficiency in buildings and facilities leads to lower operational costs, better resource management, and enhanced environmental sustainability. Moreover, it plays a critical role in reporting sustainability efforts and evaluating performance metrics in various contexts.
European Union Non-Financial Reporting Directive: The European Union Non-Financial Reporting Directive (NFRD) is a regulatory framework that requires certain large companies to disclose information on their environmental and social impacts, as well as governance practices. This directive aims to enhance transparency and accountability in corporate reporting, ensuring stakeholders have access to relevant non-financial information, which is crucial for preparing and presenting sustainability reports effectively.
Global Reporting Initiative: The Global Reporting Initiative (GRI) is a leading framework for sustainability reporting that provides organizations with standardized guidelines to measure and communicate their environmental, social, and economic impacts. This initiative encourages transparency and accountability, helping businesses integrate sustainability into their operations and align with global sustainability goals.
Integrated Report: An integrated report is a comprehensive document that combines financial and non-financial information to provide a holistic view of an organization’s performance and strategy. This type of reporting aims to demonstrate how a company creates value over time by linking its strategy, governance, performance, and prospects in the context of its external environment. Integrated reports help stakeholders understand the connections between financial and sustainability performance, offering insights into how a company manages risks and opportunities.
International Financial Reporting Standards: International Financial Reporting Standards (IFRS) are a set of accounting standards developed by the International Accounting Standards Board (IASB) that provide a global framework for how public companies prepare and present their financial statements. IFRS aims to make financial reporting consistent, transparent, and comparable across international boundaries, which is essential for investors and stakeholders. This standardization is particularly important in sustainability reporting as it guides organizations in disclosing their environmental, social, and governance (ESG) performance in a way that can be understood globally.
International Integrated Reporting Council: The International Integrated Reporting Council (IIRC) is a global organization that aims to promote and support integrated reporting as a way for organizations to communicate their value creation over time. The IIRC developed a framework for integrated reporting, encouraging businesses to include both financial and non-financial information, focusing on sustainability, governance, and stakeholder engagement. This approach helps organizations provide a holistic view of their performance, aligning with broader sustainability goals.
Life Cycle Assessment: Life Cycle Assessment (LCA) is a systematic process for evaluating the environmental impacts associated with all stages of a product's life, from raw material extraction through production, use, and disposal. This comprehensive approach helps businesses understand the full range of environmental effects related to their products and processes, enabling more informed decision-making and sustainability practices.
Materiality: Materiality refers to the importance or significance of information in influencing the decisions of stakeholders, especially in the context of sustainability and corporate social responsibility (CSR). It highlights which issues are relevant for reporting and decision-making processes, ensuring that organizations communicate the most critical aspects of their environmental, social, and governance impacts to stakeholders.
Stakeholder Engagement: Stakeholder engagement is the process of identifying, analyzing, and interacting with individuals or groups that have an interest in or are affected by a company's operations. This approach helps organizations understand stakeholders' needs and expectations, ultimately leading to more sustainable business practices and better decision-making.
Sustainability Accounting Standards Board: The Sustainability Accounting Standards Board (SASB) is an independent nonprofit organization that develops and disseminates sustainability accounting standards that help public corporations disclose material, decision-useful information to investors. SASB focuses on enhancing the transparency of environmental, social, and governance (ESG) factors in financial reporting, which connects economic performance with social and environmental impact.
Sustainability reporting software: Sustainability reporting software is a specialized tool that helps organizations collect, analyze, and present data related to their environmental, social, and governance (ESG) performance. This software streamlines the process of creating sustainability reports, enabling companies to communicate their sustainability initiatives and impacts effectively to stakeholders. It often includes features for tracking metrics, ensuring compliance with regulations, and integrating data from various sources.
Sustainable sourcing: Sustainable sourcing refers to the procurement of goods and services in a way that takes into account the environmental, social, and economic impacts throughout their lifecycle. This approach aims to minimize negative effects on the planet while supporting ethical labor practices and contributing to local economies. By integrating sustainable sourcing into business strategies, organizations can better measure their performance across multiple dimensions of sustainability.
Transparency: Transparency refers to the openness and clarity with which organizations communicate their practices, decisions, and performance to stakeholders. This concept fosters trust, as stakeholders can easily access relevant information about the organization’s actions and impacts, thereby encouraging accountability and informed decision-making.
Water Usage: Water usage refers to the amount of water consumed in various processes, including agricultural practices, industrial manufacturing, and everyday activities. It is a critical factor in evaluating sustainability as it directly impacts the availability of freshwater resources, ecosystem health, and overall environmental quality.
World Resources Institute: The World Resources Institute (WRI) is a global research organization focused on sustainability and the responsible management of natural resources. It aims to provide data-driven solutions to environmental challenges, empowering decision-makers with research and tools that promote sustainable development. Through its work, WRI emphasizes the importance of integrating sustainability into logistics and transportation systems while also guiding businesses in preparing comprehensive sustainability reports.