Sustainability reporting is more than marketing

Graham Sprigg

Sustainability reports are set to become crucial business assets, says Graham Sprigg

The practice of sustainability reporting has become commonplace among many businesses in recent years and has been subject to significant changes and evolutions. Although the construction industry has historically been criticised for not communicating its sustainability efforts effectively, forward-thinking companies are increasingly realising the benefits of using sustainability reporting as a differentiator.

With increasingly sophisticated guidelines, new legislation for large companies on mandatory carbon reporting and considerations around putting a financial value on natural resources, there is a strong impetus for reporters new and old to review their approach.

According to research by the Governance and Accountability Institute, a global research, news and trend monitoring organisation, companies that disclose their sustainability performance are actually outperforming those that don’t, which suggests a strong correlation between financial and sustainability performance – evidence shows that reporting companies appear to perform better in financial markets over the long-term and benefit from higher share prices.

Producing a sustainability report isn’t just helpful for marketing purposes – it can facilitate the embedding of measurement, monitoring and engagement practices that provide benefits all year round. If done well, the process of gathering data and feedback will support the business in aligning its goals with the needs of its stakeholders. If done regularly, it will also provide a structure in which to measure your progress on specified targets.

Materiality and stakeholder engagement

A reporting framework used widely around the world is the Global Reporting Initiative (GRI). The latest guidelines, G4, which were released recently, place greater emphasis than ever before on ‘materiality’, or the process of determining and prioritising the most important issues, and stakeholder engagement. Whilst neither of these concepts are new to reporting organisations, G4 sets out a clear process for determining material issues and for the first time requires that organisations disclose a full list of the identified and prioritised issues and topics.

For construction companies that have a wide range of stakeholders to consider, materiality is crucial for ensuring reports are specific, relevant and meaningful for those reading them. For example, Saint-Gobain UK and Ireland’s 2012 Sustainable Development Review has been built around the identification and prioritisation of the company’s “critical success factors”. This ensures that the issues reported on are relevant not only to external stakeholders, but also to its various brands, such as Jewson and British Gypsum.

A good sustainability report will meet the information needs of key stakeholders, which means businesses must first understand what these groups consider to be ‘material’. Rather than being a bolt-on to the process, these guidelines place stakeholder engagement at the centre of reporting. By building effective dialogue that helps to determine materiality, sustainability reports can become powerful tools for both strategy development and communication. 

Carbon reporting

Another development in the last few years is the rise of carbon reporting. The environmental benefits of measuring and reporting emissions include being able to set targets and put initiatives in place for reduction. According to the Department for Environment, Food and Rural Affairs, carbon reporting will contribute to the UK saving four million tonnes of carbon emissions by 2021. However, the bottom line benefits of carbon reporting are also compelling. According to the Carbon Disclosure Project (CDP), a voluntary system for companies and cities to measure, disclose, manage and share vital environmental information such as carbon, businesses that disclose carbon data will benefit from increased efficiency, reduced costs, and the ability to identify key business opportunities and manage long term business risks.

Although many companies voluntarily report their carbon emissions through systems like the CDP, regulation means that 60% of the UK’s emissions are being captured by the European Union Emission Trading Scheme and the CRC Energy Efficiency Scheme. Both of these schemes require companies that meet their specific criteria to measure and report their carbon emissions each year. This figure is set to increase from October, with the mandatory greenhouse gas (GHG) reporting regulation (Companies Act 2006 (Strategic Report and Directors’ Report) Regulations 2013) coming into effect. Under this legislation, quoted companies (those that are incorporated and whose equity share capital is listed on the London Stock Exchange) will be required to report their annual emissions in their directors’ report for reporting years ending on or after September 30 2013.

Furthermore, it is expected that in 2016, the UK government will consider extending the regulations to all large companies, as defined by the UK Companies Act, which could be between 17,000 and 33,000. Due to the energy-intensive nature of the construction industry, these changes will no doubt have implications for measurement and reporting practices, and perhaps even act as a precursor to sustainability reporting.

Natural capital

Finally, with the increasing awareness and identification of business risks and opportunities that often surface during the reporting process, the concept of natural capital is also becoming more prominent. Natural capital is the stock of capital derived from natural resources, such as diversity and geological resources such as fossil fuels. Businesses have the potential to negatively and positively impact sources of natural capital through their activities and outputs, which can in turn affect the company through improved asset value or decreasing profit margins, for example.

Although few businesses currently have formal financial accounting systems for evaluating natural capital, tools to support the identification of associated risks and opportunities are being developed and will no doubt gain popularity, particular for industries that rely heavily on natural resources.

These developments and evolutions in the sustainability reporting landscape provide an array of opportunities for forward-looking businesses. As well as supporting communication efforts, disclosing sustainability performance and engaging with your stakeholders will enable your report to become a powerful strategic tool.

The measurement and reporting of carbon emissions will also provide a host of environmental and business benefits, as will the identification of risks and opportunities derived from natural capital. In order to take advantage of these gains, however, businesses must ensure that sustainability is “business-as-usual”.

Graham Sprigg is a director at IMS Consulting, a specialist in helping clients unlock their sustainable potential throughout their strategy, engagement and communications. www.imsplc.com [email protected]