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Sustainability Reporting: The Need of the Hour

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Sustainability Reporting: The Need of the Hour

Crises are often catalysts of change, forcing us to look at new perspectives and re-evaluate our actions. The current pandemic has brought into sharper focus what the cost of our actions are on the health of our planet, and in consequence, the private sector is reconsidering the social and ethical implications of doing business. One key aspect in this exercise is looking at the viability of the environmental, social and governance (ESG) agenda from a new lens and creating varied opportunities led by a sustainable transformation.

Companies today are under increased scrutiny, with socially conscious consumers watching them with a keen eye on how they are adopting and upholding sustainability practices. Answering this call, companies have, in earnest, started to realign their business priorities to a higher purpose, from resource conservation to contributing to social good, and have raised their commitment to ESG goals, instead of just focusing on short-term profits. In order to achieve this transition, it is imperative to keep sustainability reporting at the heart of such actions, to serve as an anchor for companies to steer in the right direction and make bolder, measurable decisions to build a greener planet.

What is sustainability reporting?

A sustainability report contains an organisation's non-financial performance information and discloses its social, environmental and governance performance. This report is published to demonstrate transparency with stakeholders as well as society. It's the first step in building a robust framework and implementing strategies that can help an organisation measure and manage their sustainability-related impacts, assess potential risks, set clear goals, and understand how it can drive value for its stakeholders. Some organisations have even started publishing this information alongside their annual financial report, a concept which is known as ‘integrated reporting'.

Why is it important?

To build trust and credibility, companies need to be accountable for their negative and positive impact on the environment, society, and economy. Revealing these insights can go a long way in cultivating positive brand affinity and showcase the organisation's commitment towards preserving the environment's precious resources. Sustainability reporting enables organisations to address potential sustainability issues and understand how they can impact the bottom line. It can further help them explore new avenues for growth, identify new opportunities and create new benchmarks of continued improvement, thereby increasing shareholder value.

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Understanding the evolving landscape of sustainability reporting

While most companies were already generating financial reports, it was only in 2009 that Indian companies were given voluntary guidelines to report their CSR-led initiatives by the Ministry of Corporate Affairs (MCA). Following further pressure from stakeholders, investors and academicians among others, the government revised these very guidelines on Social, Environmental and Economic Responsibilities of Business in 2011.

However, since these sustainability reports are optional and usually developed separate from financial reports, there was a clear disconnect between a company's financial and sustainability performance. This is what birthed the adoption of integrated reporting, which ensured that all facets of environmental, social and governance were intertwined to provide a holistic findings.

In reviewing the various aspects of sustainability reporting from 5,200 companies across 52 countries and jurisdictions, KPMG's 2020 Survey of Sustainability Reporting revealed that a whopping 80% of companies worldwide now publish a report on sustainability. This directly correlates to the increasing importance of sustainability and ESG data across the globe, as per the survey.

The analysis further revealed how climate change has taken centre stage with about 40% of companies acknowledging the threats of climate-related issues and how, if continues unabated, it can contribute to an increase in financial risks. Aside from considering climate-related disclosures in their reporting, a large number of companies worldwide are also working to reduce their carbon emissions by setting clear targets in their reporting.

Where does India stand?

While the overall sustainability reporting in the Asia Pacific region has grown by 6 percentage points since 2017 to 84%, India is at the top at 98%. India is also one of the few countries to report a growth in integrated reporting. However, this increase can be attributed to a 2017 mandate by the Securities and Exchange Board of India (SEBI) encouraging voluntary adoption of integrated reporting by the Top 500 listed companies.

Two years later, SEBI extended the Business Responsibility Reporting (BRR) requirements to the top 1000 companies and mandated its filing for the financial year 2019-20. To bring in greater transparency in providing ESG-related information, SEBI proposed a new format of Business Responsibility and Sustainability Reporting (BRSR) in August 2020, allowing companies to adopt it voluntarily till 2021, and mandatorily from the financial year 2021-22.

With ESG concerns rising, it is imperative for businesses to go beyond simply fulfilling shareholder commitments and make socially responsible contributions to society and ensure ESG compliance. This would also help investors direct their investments to companies that uphold ethical standards in line with sustainable practices. Lastly, by enforcing a BRSR mandate, the government can enlist the help of sustainable enterprises in meeting India's SDG targets.

The sustainability reporting approach

Although KMPG's research analysis suggests that corporate reporting on the Sustainable Development Goals (SDGs) leans more towards companies' positive contributions rather than its negative output, several companies have made strides in imbibing sustainability as part of its core corporate strategy. ITC, Hindustan Unilever and AB InBev, among many others, have aligned their sustainable goals with the UN SDGs established by the United Nations in 2015.

The reports published by these companies provide information about the progress they have made towards each of their goals while highlighting key initiatives that serve to reduce environmental damage, create resilient green supply chains, ensure water security, strengthen water governance, work towards eliminating carbon emissions, and increase usage of renewable energy sources. For instance, AB InBev is steadily making strides towards their ambitious 2025 Sustainability Goals, across key pillars of Smart Agriculture, Water Stewardship, Climate Action and Circular Packaging. They have incorporated various forms of recycling, deployed renewable electricity solutions in their operations, provided water access and quality in high-stress communities, increased farm quality and yield, and undertaken water conservation measures within and outside their breweries.

It is time for companies to prioritise sustainability reporting. Only then can they truly unlock the value towards improving business performance by creating long-lasting relationships with stakeholders and investors.

References:

https://assets.kpmg/content/dam/kpmg/xx/pdf/2020/11/the-time-has-come.pdf

https://www2.deloitte.com/content/dam/Deloitte/my/Documents/risk/my-risk-sustainability-reporting-strategy.pdf

https://annualreport.ab-inbev.com/2019/sustainability/scope-and-report/

https://www.itcportal.com/sustainability/sustainability-report-2020/sustainability-report-2020.pdf

https://www.hul.co.in/Images/unilever-sustainable-living-plan---hul-summary-of-progress-2019_tcm1255-551089_1_en.pdfFeature