The content of a Sustainability report?

Ok, so you have decided to make a sustainability report for your company, good!

Where to start?

The material ESG factors for your activity

The first ting to do is to define what the material sustainability factors are specifically for your industry and company. The starting point here is to look at global mega trends like Digital transition, Environmental and Ecological transition and Demographic transition. How do they impact your company and how do you manage this?

For instance in Digital transition, is cyber security a key risk for your activity? This can be the case if you have production secrets, sensitive client dta etc. In Environmental transition do you operate in a sector where you have a heavy negative impact on the environment and have an imminent risk of suffering from the inevitable political risk (IPR) or do you have an activity where the relationship to state entities exposes you to corruption? In demographic transition, do you have an activity that is responding to new demands from the millenials?

The sustainability report should contain a description of the material risks, where your company is the most exposed. Thereafter a narrative description on how you handle this to mitigate the risk eventually increase the opportunity.

Where the main difference is today among the companies that make the best sustainability reports and the others is in the clear use of KPIs (Key Performing Indices) or not.

A KPI is a way to measure the management of the risk, it also gives a frame work to define targets and to show the history.

For the examples above;

If you are exposed to Cyber Security risks, you can make a narrative about the security you have installed, and maybe a KPI on number of prevented cyber attacks, with history. If you are exposed to IPR in relation to environmental risks, you can show your GHG (green house gas) emissions over the last 5 years, preferably related to your activity level. You can inform about the target and how you plan to get there. This will commit you and investors and banks or whoever that will finance you will appreciate this. Of course this will only work for you if there are real action behind the words and that the target is realistic. If you are exposed to changing consumer trends by millenials, you can have a KPI showinf the % of new products that correspond to this change in consumption trend, for instance less sugar or better suiting for the circular economy.

We should also explore other parts where there is sustainability risks, like for instance on the Social (internal to the company) and Societal (external to the company) side. Examples of these are; on the Social side the existence of a code of conduct policy including anti corruption and an education program for the employees; on the societal side the existence of a policy to approve suppliers by for instance making them sign and respect your code of conduct.

The KPIs for the above examples could be on the social side, how many of all employees have had the education in the code of conduct? Is there an “exam” to ensure it is understood? For the societal side, KPIs could be on the number of suppliers relative to the total number of supplies that have signed the code of conduct. Another could be a KPI on how many of these you have controlled on site.

Yes, using KPIs will create work for you, but it is the only way you cen take the step from a narrative answer to how you deal with the sustainability risks or ESG risks to a KPI based answer that is more precise and also commits you if you show history and set up targets for the different KPIs.

Governance is another part to deal with in the sustainability report, but here the KPIs are mainly around BOD member availability, diversity and relevant skills plus the alignment of the CEO pay. In addition to this there are other elements we study that is either ok or not ok, so no KPI is needed for these.

If you think sustainability related reporting is not here to stay, I suggest to contact us for a discussion. It is here and it will grow.

If you are convinced that this is important and you need help, contact us today!