Purpose of Corporate Sustainability Reporting Framework
Supporting businesses in disclosing their environmental, economic and social impacts with their stakeholders in the most apparent, brief, comprehensive, dependable, steady, comparable and future-oriented manner is the general purpose of the corporate sustainability reporting framework (Kücükgül, Cerin and Liu 2022). Sustainable Development Goals (SDGs) have a key role to play in developing a corporate sustainability reporting framework. SDGs can be regarded as a collection of seventeen interweaved global goals that the United Nations (UN) developed to be used as a plan to attain a better and more sustainable future for all (sdgs.un.org 2022). At present, major corporate sustainability reporting frameworks which are dealing with various sustainability issues are interested in publishing guidelines for supporting the SDGs. Business organizations can use these goals to be benefitted by fulfilling their corporate responsibilities and providing valuable reporting on these goals to their stakeholders (Kücükgül, Cerin and Liu 2022). This report focuses on the critical discussion of various reporting frameworks and guidelines for reporting SDGs. After that, it identifies and develops the needed sustainability disclosures to be made under the chosen frameworks. The next part assesses the quality of SDGs reporting by five companies from the FTSE 100. The last part identifies the limitations of SDGs reporting and suggests ways to enhance them.
The presence of many reporting frameworks can be seen in SDGs reporting. The following discussion discusses six of these frameworks:
Sustainability Reporting Standards Board (SASB) – The SASB can be viewed as an ESG guidance framework, and it is involved in setting standards for disclosing financial material sustainability information by the firms. The SASB standards include 98% of the industry-specific sustainability topics, and these topics are associated with one or more SDGs. It makes the SASB framework a key one for the companies and investors in identifying the SDGs with the most relevance for financial and operational performance. The use of this framework enables the companies in allocating financial capital and other resources to the SDGs that are in line with their financial risk-and-return objectives (sasb.org 2022).
International Integrated Reporting Council (IIRC) – The IIRC has developed a framework for governing an integrated report’s overall content. The IIRC framework largely contributes in attaining the SDGs through applying integrated thinking. More specifically, integrated reports are used in this framework for communicating the contribution of the companies towards achieving the SDGs and how they have addressed the risks and opportunities related to sustainable development. Companies can bring considerations of the SDGs into conventional thinking, decision making, planning and reporting by using this framework. One key reason behind developing this framework is to improve the contribution of the companies to attain the SDGs (integratedreporting.org 2022).
Task Force on Climate-related Financial Disclosures (TCFD) – It can be viewed as a guidance framework that assists companies in disclosing climate-related financial risks to the stakeholders. This framework has been created by the Financial Stability Board for enhancing and increasing reporting on climate-related financial information (fsb-tcfd.org 2022. As a result, this framework largely contributes toward achieving SDG 13 Climate Action. More specifically, it provides the companies with the necessary guidance on taking the necessary actions for combatting climate change and its impacts. It helps the companies in the areas of climate-change-related risk assessment, allocation of capital and other resources, and strategic planning (fsb-tcfd.org 2022).
Role of SDGs in Corporate Sustainability Reporting Framework
Global Reporting Initiative (GRI) – The GRI standards empower the companies in understanding and reporting on their impacts on the environment, economy and people in a comparable and trustworthy manner. GRI has a close association with the UN, and therefore, it works actively for introducing smart policies for strengthening the contribution of the companies to the SDGs (globalreporting.org 2022). In addition, this framework assists the government in measuring the contribution of the businesses to the SDGs since it requires greater involvement of both the private and public sector companies in Voluntary National Reviews. Furthermore, the companies can use the SDG Compass to align their strategies with the SDGs in order to improve their contribution in sustainable development through core business activities (globalreporting.org 2022).
United Nations Global Compact – It can be viewed as a non-binding United Nations agreement for encoring companies in adopting socially responsible and sustainable policies. It has established and is circulating important guidance to help businesses to integrate the SDGs into their reporting framework. Measuring and revealing the impacts of the SDGs is helpful for the companies to ensure better stakeholder engagement, improve the sustainable decision-making process, and reinforce accountability (unglobalcompact.org 2022).
International Organization for Standardization (ISO) – It is responsible for developing and publishing a wide range of industrial, commercial and proprietary standards. An ambitious plan for improving peace and wealth, eliminating poverty and protecting the planet is represented by the SDGs. More than 22000 International Standards have been published by ISO, and the use of these standards helps the companies to achieve every one of the SDGs (iso.org 2022). The regulators can depend on the standards of ISO as a solid foundation for creating public policies that assist in achieving the SDGs, such as water and energy efficiency, human rights, public health and more. A key role is played by the industry to achieve the SDGs, and the standards of ISO assist it by providing them with the required guidelines and framework on the key sustainability issues (iso.org 2022).
The above-discussed frameworks require certain disclosures to be made on the sustainability issues or topics. These disclosures are as discussed below:
SASB – Companies are required to disclose information on their sustainability and ESG activities under this framework. It requires the companies to disclose information on the sustainability topics that are rationally expected to have material impacts on their financial conditions, operating performance, and cost of capital (sasb.org 2022). For each topic, decision-usefulness accounting metrics are developed by SASB to account for the performance of the companies. The companies are needed to disclose information on these accounting metrics developed by SASB (sasb.org 2022).
IIRC – The IIRC has recommended certain disclosure to be made in terms of the SDGs. The companies are needed to include these disclosures in the form of a summary in an annual integrated report, annual report, strategic report or equivalent. First, the strategy needs to be disclosed by describing how the strategy has been influenced by considering the sustainable development issues. Second, the management approach needs to be disclosed about how the management has integrated the sustainable development issues and SDGs into the organizational processes. Third, performance and targets need to be disclosed by disclosing information on how the company has performed against the sustainability targets. Finally, how the board has integrated the sustainable development issues into the corporate governance mechanism should be disclosed (integratedreporting.org 2022).
Various Reporting Frameworks for SDGs
TCFD – Four specific aspects should be disclosed under this framework. First, the companies are needed to disclose the organizational governance framework around the risks and opportunities related to climate change. Second, the effect of the actual and possible impacts of the climate-related risks and opportunities on the organizational strategy and financial planning should be disclosed. Third, it is needed to disclose the organizational processes for recognizing, evaluating and managing the risks related to climate change. Finally, it is required to disclose the metrics and targets used for evaluating and managing relevant risks and opportunities related to climate change (assets.bbhub.io 2022).
GRI – This framework requires making the necessary disclosures under GRI: 2 General Disclosures 2021 (GRI 2) and GRI 3: Material Topics 2021 (GRI 3). GRI 2 requires the companies to disclose the details of organizational structure and reporting practices. GRI 3 requires the companies to disclose information on material sustainability topics (globalreporting.org 2022).
United Nations Global Impact – It requires the companies to make the SDGs related disclosures through Communication on Progress (COP). The companies are required to disclose information on their powerful drivers of non-financial reporting through COP. They need to provide detailed information on their performance against the SDGs in COP (unglobalcompact.org 2022).
ISO – It requires the companies to disclose the information on their sustainability performance by using a specific framework. For example, the companies can disclose their performance on the sustainability issues against the ISO standards in the CDP report of the GRI report. The companies can disclose their performance against the ISO standards of sustainability (iso.org 2022).
The selected five companies from FTSE 100 are Next Plc, AstraZeneca Plc, Smith Group Plc, Tesco Plc, and British American Tobacco Plc. The following discussion shows the quality of these selected companies’ SDGs reporting:
Next Plc. – Details on the SDGs have been reported in the Corporate Responsibility Report. The firm has aligned with nine SDGs as they are material to its business operations and products. In order to ensure a high quality of its SDGs reporting, the firm has disclosed its contribution to these SDGs in a detailed manner. In addition, performance data have also been published to ensure the understandability and comparability of its SDGs reporting (nextplc.co.uk 2022).
AstraZeneca Plc. – The firm has disclosed its contribution to the SDGs in its 2021 Sustainability Report. It has implemented 9 SDGs out of 17 based on the need and type of its business. The assessment shows that the key initiatives under each adopted SDG have been disclosed in the sustainability report (astrazeneca.com 2022). For instance, the firm disclosed that it planted 3430061 trees since 2020 through AZ forest to contribute towards SDG 15 Life and Land. More detailed information has been disclosed in Sustainability Data Summary 2021, where the data on its performance against each SDG has been disclosed for three years (astrazeneca.com 2022). It indicates the firm’s commitment to reporting the relevant information on the SDGs.
Smith Group Plc. – The firm has taken a different approach to reporting on the SDGs. It has grouped the SDGs under the material sustainability topics or issues, such as SDGs 3, 5, 8 and 10 have been grounded under the ‘Our People’ topic. Under each material topic, the firm has disclosed its focus areas and key performance highlights in 2021 (smiths.com 2022). In this way, it becomes comprehensible for the users to identify the SDGs related issues and the firm’s performance against each of them. It increases the effectiveness and efficiency of SDGs reporting.
Disclosures to be Made under Different Reporting Frameworks
Tesco Plc. – The firm has collaborated with the United Nations Global Compact framework to report on the SDGs. Tesco Plc. is perhaps the firm that has undertaken SDGs reporting in the most effective and comprehensive manner. Against each SDG, it has disclosed its commitment, actions taken and data on its performance. Furthermore, the firm has also disclosed information on its performance on other SDGs (tescoplc.com 2022). This particular technique of SDGs reporting facilitates easy understanding and comparison of the SDGs that are material to its business operations.
British American Tobacco Plc. – The firm has reported on eight SDGs that it has adopted for its business and stakeholders. In order to keep SDGs reporting simple and comprehensible, the firm has disclosed the necessary information in two parts. In the first part, the strategies and details of the mapped SDGs have been disclosed so that the users can have a clear understanding of these goals. The next part tracks the progress of these sustainability metrics over the last three years (bat.com 2022). The firm has used status and assurance to provide more information on these goals.
It is important to mention that SDGs reporting is not free from limitations, and these limitations can be removed with proper suggestions. The following discussion shows the limitations in SDGs reporting and related suggestions:
The absence of a clearly defined business case is a key limitation as it develops the risk that the actions of the company on SDGs could be restricted to charitable programs.
Therefore, the suggestion is to develop an SDG business case to take action on these goals. It is helpful for the companies to take advantage of the huge potential markets for the products and services related to SDGs (home.kpmg 2022).
Lack of proper communication from the top is a major limitation in SDGs reporting as it restricts these goals from reaching every aspect of the business.
In order to ensure proper communication, the senior management of the companies should include SDGs reporting in their long-term strategies.
Another key limitation is the propensity of the companies to show only the positive impacts of SDGs on the companies, as it leads to a lack of transparency.
It could be improved by demonstrating both the positive and negative impact of SDGs on the companies as it will increase transparency, trust and credibility of SDGs reporting.
Often companies do not prioritize the SDGs based on their business operations, and it leads to oversimplification of SDGs reporting (kpmg 2022).
To improve this, the companies are advised to recognize the specific SDGs which are the most material and relevant to their business operations and stakeholders.
Lack of communication on how the SDGs have been prioritized by the companies is another key limitation of SDGs reporting.
This could be improved by disclosing the process or method that the companies used for recognizing the most relevant and material SDGs.
Failure of the companies in identifying the specific SDG targets that are relevant to their business is another key limitation of SDGs reporting.
Quality Analysis of SDGs Reporting by Five Companies from FTSE 100
The companies are suggested to disclose which of the 19 SDGs they aim to contribute to basis their business needs and other factors (home.kpmg 2022).
Most companies do not align the SDGs with their key performance indicators (KPIs), reducing the usefulness of SDGs reporting.
To improve it, the companies are suggested to disclose how they propose to measure their contributions to the SDGs and what SDG-associated performance goals they are setting.
Failure of the companies to ensure their SDGs are SMART that is specific, measurable, achievable, relevant, and time-bound is a key limitation of SDGs reporting
The higher management of the companies is recommended to take each of these matters into consideration in terms of each SDG so that the SMART goal can be achieved (home.kpmg 2022).
Conclusion
There are some major sustainability reporting frameworks that use SDGs to measure the sustainable development performance of the companies. Some of these major frameworks are SASB, IIRC, GRI, ISO, TCFD and United Nations Global Compact. These sustainability reporting frameworks aim to disclose information on how the companies are performing against the SDGs or other sustainability metrics. Even though the central idea is the same, different types of disclosure mechanisms are used by different frameworks. An assessment of 5 FTSE companies shows that each company has adopted different strategies to show information on their progress on SDGs so that the overall quality of SDGs reporting is maintained. There are some key limitations of SDGs reporting, such as the lack of business cases, failure in prioritizing the SDGs, and others. However, it is possible to improve the quality of SDGs reporting by following the provided suggestions.
References
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