News and Views

8 secrets to effective sustainability reporting

Insights from industry insiders reveal the key to impactful sustainability reports: transparency, accessibility, and actionable data. Learn how to tailor your report to meet stakeholder needs and enhance your company’s ESG performance.

Kaveri Marathe
&
September 12, 2024
News and Views

8 secrets to effective sustainability reporting

With hundreds of published reports under our belt, thinkPARALLAX is proud to be a leading provider of sustainability reporting services to public and private companies in North America. When we begin our engagement with clients, one of the fundamental questions we ask is: “Who are the intended audiences for this report?” That’s because, as communications experts, we know that if you want your message to be heard, you have to speak in a language your target audience can understand.

Who, in practice, actually reads these reports? And what do they do with them? What are their pain points? To answer these questions, we conducted more than a dozen interviews with industry insiders, from non-profits that do topical research, to supply chain partners, to investors and the media, to understand what stakeholders are actually seeking when they crack open your sustainability report.

The highlights from these conversations are detailed below. We hope this information will help your company tailor how it approaches and executes its sustainability reporting to be both more effective and more efficient.

1. Transparency should be your top priority

We heard one thing over and over again across our interviews: “transparency.” Stakeholders emphasized that disclosing more data — quantitative and qualitative — enabled them to make more informed decisions, which ultimately benefits the companies themselves. Simply going from no disclosure to basic disclosure, even if the figures are unimpressive, actually improves a company’s score on most ESG ratings and rankings. As Erika Folgar, Research Analyst at FreeCap Financial, a research company that provides investors and money managers with racial justice-oriented data told us, “If a company fails to report something that we’re looking for, they get a zero. How are we supposed to give them points for doing something if they don’t actually state that they’re doing it? Even if they just have a statement out there, that's better than having nothing.” This ESG data goes into the decision-making of activist investors and can affect the cost of capital to companies, which can have a real financial impact on their operations.

Furthermore, disclosure of any kind presents an opportunity to mitigate risk. In a world where there is no regulatory requirement to report, that doesn’t mean you’re not being watched by the media and other watchdogs. As David Hood, senior ESG reporter for Bloomberg Law, said, “The reputational risk for these companies is real. And these ESG reports could be viewed as opportunities to be honest to mitigate a PR disaster.” In short, own the narrative before someone else does.

2. Make the report easy to access

You’re not doing yourself any favors by burying your report somewhere on your website. Data providers spend hours digging up every publicly-available statement your company has made, and, as Folgar said, “Whether it’s in the appendix, the body, a separate document — I’ll find it eventually.” Putting your report somewhere on your website where it’s clearly labeled and quickly and easily found, therefore, simply gives analysts more time to review its contents.

3. Make your data easy to access

Ultimately, stakeholders want to analyze the data within your report, and they noted several roadblocks that inhibit this. One was the format of the report. While some readers did say they prefer a report that has an attractive design — due to the sheer number of reports they review — most prefer a report with minimal design and imagery. They strongly urged against including elements in an unsearchable or non-copy/ pasteable image format, like a JPEG, preferring a readable PDF format. 

That said, call-outs of key data points and data visualizations, like graphs and charts, are viewed as valuable because they indicate what a company prioritizes — as long as those highlights accurately represent the data. Bruce Thomson, Director of Sustainability Research at S&P Global cautioned, “It is valuable to use key metrics to illustrate and substantiate your story to analysts who are reviewing hundreds or even thousands of reports, but don’t overdo it because it will be scrutinized. Are you using standard or accepted methodologies? Are these metrics relevant and representative of performance? Why are you using that as your baseline? Analysts are becoming more sophisticated. We're going to look at it through a relatively skeptical eye.”

And what most raters and rankers may not want you to know is that the inconsistency of the current reporting landscape is actually what enables them to differentiate themselves from their competitors. Since ESG reporting is not currently legally required (nor is there a single reporting standard or framework), raters and rankers each have their own approach, or “special sauce,” to assessing, scoring, and collecting non-financial data from companies. But if and when reporting of ESG data moves to a financial style of reporting — what we find in corporate 10- and 8-K reports — it’s “game over for the research and data companies,” as one rater and ranker told us. At that point, ESG data will become a commodity, just like financial data. The key insight here is that the best way to make sure your data gets accurately and comprehensively included in analyses is to align your metrics to a globally-recognized framework, like GRI or ISSB, and to share your data in a downloadable Excel spreadsheet. 

4. Improve your data quality

Sophisticated investors can read between the lines when they’re analyzing your data, and, as Thomson noted, “They want to see something more quantitative based on expected standards and cross-comparable between organizations.” As several stakeholders noted, they’re gathering data about companies from every available public source, including going as far as tracking down federally-reported data, such as vendor spending and EPA violations. As Thomson put it, “Investors are relying less and less on what you want them to hear, and more and more on what they're able to find out on their own. So either make your reporting comprehensive, easily readable, discoverable, rigorous, and up to expected standards, or you're going to lose control of your own narrative.”

5. AI is on the horizon

Most stakeholders noted that while they have begun to use AI technologies like machine learning and large language models to streamline some processes, these are not completely reliable yet. Josh Ramer, Co-founder and CEO of DiversIQ, a provider of diversity and human capital benchmarks for publicly-traded companies, said his firm has begun deploying the use of AI in only a limited way so far. “It's been really good in some areas, but I'm really wary because of the hallucinations. PDFs are really hard to do anything with in an automated, consistent way because they're so different. We mainly use it with financial statements because they're much more structured.” 

Currently, and at least in the short term, most raters and rankers are relying on a tried-and-true tool: Control+F. Most stakeholders do a simple keyword search for the terms most often associated with their topic of choice to skip straight to the content they need, regardless of where it sits in the report.

In the longer term, especially as reporting becomes more common and rigorous, AI poses a significant opportunity to rapidly review and pull relevant data from the thousands of reports stakeholders are reviewing. The stakeholders we spoke with acknowledged that most of their organizations are already using AI in some ways and developing their own proprietary AI tools in house. This is another important reason for companies to make their reporting easily readable and structured, to enable AI tools to accurately capture data from them.

6. Context is critical

Most sustainability reports include a mix of content: goals, data, data visualizations, stories, and trend explanations. Stakeholders noted that while the stories are sometimes useful, the explanation of data trends is critical. According to Jason Lindauer, Senior Director of ESG Products at Dun & Bradstreet, a leading global provider of business decisioning data and analytics, “The more qualitative context, the better, as a supplement to the quantitative data. Similar to the notes that accompany financial statements, you want details when you’re looking for signals into why the number is what it is or why it’s changing.” Ramer added, “Providing the context right next to the data gives us that head start that’s going to save us time and make our jobs easier.”

When it came to anecdotes that companies share to illustrate specific data points or programs, stakeholders were on the fence. While they noted that these can be valuable from a storytelling or marketing perspective, stakeholders were mixed on their utility in data-centric sustainability reports. Stories “should be a concrete example or a case study that's indicative of what you're really doing and how you're achieving those sustainability ambitions or contributing to what you've identified as your material areas of impact, not just an isolated ad-hoc,” said Thomson. In essence, they should help investors make more informed decisions, or they should be repurposed as marketing content.

7. Leveraging your report for engagement 

Most companies spend so much time and money putting together their report every year that reaching their publication date feels like the finish line. But companies would be wise to consider this the end of one phase and the start of the next: leveraging the report as an engagement tool for other audiences. 

Your report contains a wealth of resources that can be utilized through internal and external marketing and communications channels to tell your story to your employees, customers, suppliers, and others. Failing to take advantage of this abundance of content is a missed opportunity.

8. Improve Your Score

Your report is also an opportunity to connect with investors and raters and rankers to improve your score. Raters and rankers typically provide companies with a draft score prior to publication to provide companies with an opportunity to provide new or additional information the rater/ranker may not have seen. 

Read more: Your sustainability report Is not an engagement tool

Cailin Dendas, Environmental Health Program Senior Coordinator at As You Sow, a leading shareholder advocacy non-profit, told us, “We give companies a month to review our preliminary data and get back to us if we are missing anything. And in that month, we give them the ability to update their websites with any information that could help their scores.” This was echoed by Folgar, who said, It would be great if companies reached out and inquired about why they received the score that they did because we have a lot of notes on everything.” For these reasons, stakeholders urged companies to include an email address where they can connect with companies to learn more and access additional information.

The upshot

There’s a happy medium between not reporting at all, which is almost universally viewed as risky and unwise, to reports that stretch to over a hundred pages and overflow with content, which may have diminishing returns. It’s clear that most stakeholders are looking for a few key elements: 

  • Clear, measurable goals 
  • Progress toward these goals supported with data and narrative context
  • An explanation of the policies and programs that are helping drive this progress
  • An easy-to-read and easy-to-scrape format to facilitate analysis 

What we have observed is that companies are spending thousands of dollars putting together reports that are trying to do everything for everyone when they could be saving time and money by employing a more strategic approach to their reporting. As Thomson noted, “Too many ESG-related jobs are already fully consumed by reporting rather than actually implementing programs, so I personally would not advocate for more ESG reporting, I would advocate for better ESG reporting.” 

At the end of the day, as sustainability professionals, we all have the same goal, which is to decarbonize business operations so that we can meet global climate goals. Reporting is an important part of this, but the programs and approaches to tangibly lower the corporate footprint are even more important. If transforming the way you report can help redirect resources to action, while improving transparency, then this is a win-win worth investigating. 

If you would like to brainstorm ways to devise or revise your reporting strategy, reach out to us at [email protected].

8 secrets to effective sustainability reporting
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