How do companies tackle the assignment of conveying to their shareholders and other stakeholders how they approach sustainability—in a way that is accurate, clear and genuine and that does not sound like a confected facsimile of every other peer company? That sounds like a challenging task. To address that challenge, The Conference Board convened a working group of over 300 executives from more than 150 companies who met five times between July 2020 and May 2021 to share ideas about how companies can effectively “tell their sustainability stories.” The Board captured some of those ideas in this report.
The report begins by identifying some of the key hurdles, each of which is addressed in the report in one of the four “practical guides.”
“1) deciding what issues are truly important to disclose to convey a clear, cohesive, authentic, and distinctive story about the company;
2) maintaining consistency, ensuring that their story effectively addresses the interests of multiple stakeholders;
3) providing information that’s not only accurate and reliable, but genuinely trusted (including during crises); and
4) managing the ever-evolving—and often frustrating—landscape of sustainability regulations, reporting frameworks, and ESG rating firms—as well as the growing demands by business partners who have their own requests for sustainability-related information.”
Below are some of the insights in the report gleaned from the working group:
What to include? Notably, 60% of respondents to a survey by the Board said that their companies did not have strong internal agreement on the meaning of “sustainability”; only 32% responded that their companies had strong agreement on the definition across the business.
- Phone book-size sustainability reports are passé. The report suggests that “companies and stakeholders alike are finding that these phone book–style reports don’t meet their needs. Instead, companies are looking to focus on the handful of issues that truly matter to their long-term future and have the greatest impact on stakeholders, society, and the environment.” In the Board’s polling, “most companies identify up to 20 issues as significant. Of these, a handful of issues ‘truly move the needle.’”
- What do you mean by “material”? Although many focus on providing information that is “material,” the term has different meanings to different people. Some believe that it refers only to “financial materiality,” while others take a much broader view, looking instead to the type of information that reasonable investors consider important in making investment decisions. The report suggests that whether or not to even use the term “material” should be a “threshold question.” A Board survey showed that many companies don’t use the term at all and that “only a small minority” use a “financial materiality” standard in determining what to report. Whatever term companies do decide to use, the report advises that companies should “agree upon the standard you’re using and be explicit about that in your disclosures.”
- Determining which issues to disclose. The report suggests that companies look at “a variety of frameworks, including the framework and ‘heat map’ traditionally used in risk management.” In addition, external reporting frameworks, such as SASB or TCFD, “can be useful guides for determining or confirming material issues,” but the report advocates that companies “avoid using these frameworks as your primary input. Instead, take a company-first approach to determining material issues.”
- Stakeholder input is vital. The report advises companies to seek input from a variety of stakeholders, including from stakeholders outside the U.S. Because companies are “dynamic” and “stakeholder expectations are constantly evolving,” the report also recommends that companies take into account “what’s likely to be important in the future.”
How can you make your sustainability story authentic?
- Align with business strategy. The report advises that, to achieve authenticity, sustainability reporting should be “anchored in your company’s business strategy, ambition, and culture.” This effort should involve examining “how the company makes business decisions, runs its operations, and approaches risk management and product development/innovation.” However, the working group found that aligning with business strategy was the “biggest challenge for companies.”
- Employees can do a “gut check.” Employees are key stakeholders who can identify the issues that “move the needle” for the company, provide stories and images and do a “reality check” to verify authenticity.
- Use a tiered approach. The report suggests that companies provide a “main narrative focused on the highest priorities” that incorporates supporting data and is adaptable for different audiences. The next tier of issues can be discussed supplementally or in stand-alone documents focused on specific areas of stakeholder interest. These supplemental communications can “offer narrative context but are data heavy and provide a deeper dive on specific topics (e.g., greenhouse gas emissions; worker health and safety; diversity, equity & inclusion; supply chain resilience).”
- Dialogue with business partners and suppliers. The report suggests that “accommodating” business partners can be a huge challenge because every company is “pursuing its own sustainability story, so businesses expect their suppliers and partners to help them meet their own goals.” Some may not even be interesting in addressing sustainability. The report advocates “dialogue with your business partners to set reasonable expectations.”
How can you make your sustainability story reliable?
- Balanced disclosures. The report suggests that “neglecting or downplaying negative sustainability information risks your credibility with stakeholders and may make you susceptible to investor accusations of greenwashing. Your reporting should be balanced and transparent. It’s generally better for the company to put negative information in context than to leave it to others to build their own narrative based on it.” Not to mention potential liability in some circumstances if disclosures are materially misleading.
- Dialogue and transparency. In the event of a sustainability-related crisis, the report advises companies to know who is responsible, be “transparent with your employees, and rely on your community relationships. Doing so can help your company build trust and prepare for the long haul, since these crises can last a long time.”
- Consider use of independent assurance services. Interestingly, in a working group survey, 75% of respondents indicated that they planned to “obtain assurance or expand the scope of what they currently assure.” Not only can assurance provide confidence to investors and improve ratings, the report suggests that it can also improve internal functions, such as “internal controls and reporting systems, and drive better decision-making based on higher-quality sustainability information.” However, the report notes, obtaining assurance can be expensive and time consuming.
How should we deal with all of the regulations, reporting frameworks and rating agencies?
- Expect more requirements for ESG disclosure. In the case of ESG, the report points out, companies and funds and other institutional investors will both likely be subject to increased ESG disclosure regulation, which means that both may have some goals in common. Building coalitions could be helpful. Interestingly, 79% of working group survey respondents expected regulation to be “at least somewhat beneficial,…especially if it combines some mandatory elements with substantial flexibility for companies to tell their own story.”
- Consider reporting frameworks to be just reference points. The report suggests that frameworks are best viewed as “reference points,” and advocates that companies focus “on reporting the most relevant issues. But have a plan for commenting on why you aren’t reporting on certain metrics.”
- Be strategic in engaging with ESG rating firms. To respond to ESG rating firms requires substantial time and resources, so the report advocates that companies “[f]ocus on a few, comply with a few others, and don’t worry about the rest…. Consider industry-based discussions with investors to reduce your reliance on intermediaries.”