Sustainability reporting is on the rise — here is what your business should know
Now more than ever, we are all aware of the climate crisis. In 2021, as much as 75% of Brits reported that they feel worried about the effects of climate change, while 93% of European citizens believe that climate change is a severe problem. In response to the increasing climate change awareness of consumers, more and more companies started reporting their carbon emissions to provide transparency in regards to their impact on the climate.
In this article, we will discuss why sustainability reporting is on the rise, how much emissions-related information companies are actually disclosing, and what the future of this space looks like.
At Connect Earth, we crunch through thousands of sustainability reports in order to build a database that structures and standardises them all, so we are excited to see a significant increase in sustainability reporting in recent years.
The rate of sustainability reporting is at its highest ever
A survey published by KPMG presents that in 2020 the sustainability reporting rate among N100 and G250 companies was at its highest ever percentage — 80% for N100 and 96% for G250 companies — which is a dramatic improvement from 1999, where 35% of G250 and just 24% of N100 companies reported their sustainability data.
Moreover, in 2021, over 14,000 companies reported their emissions data through CDP — a non-profit organisation that helps companies disclose their environmental habits. Two of the most popular sustainability reporting standards boards — the GRI (Global Reporting Initiative) and the SASB (Sustainability Accounting Standards Board) — have also seen significant adoption, with over 10,000 and 1,300 companies using them, respectively. These standards offer guidance on ‘materiality’, which means identifying the most significant contributors to a business’ sustainability, so they can be prioritised for effective emissions reduction.
Why has sustainability reporting increased?
There are many reasons why sustainability reporting may have increased, including:
1. Mandatory reporting for publicly traded companies
Sustainability reporting is now viewed as a significant contributor to a business’s profitability over time. It represents a risk that must be properly disclosed to all stakeholders, for example, investors. This has led to increasing regulation on sustainability reporting for publicly traded companies.
In the UK, all public companies are required to disclose their emissions. In the EU, the Corporate Sustainability Reporting Directive (CSRD) proposed in April 2021, sets out standards for mandatory reporting for all companies listed on the European regulated markets from 2023 and for SMEs from 2026. The CSRD will publish its own set of standards later this year, which companies will have to comply with.
2. Cutting off operational inefficiencies
The process of carbon accounting generates considerable insight into the inefficiencies present in a company’s supply chain. In many cases, emissions reduction can be synonymous with reducing unnecessary energy consumption, the reduction of which can often generate significant savings. By streamlining its processes, a company can also reduce its costs and improve efficiency — a win-win!
3. Creating and increasing brand loyalty
By publishing emissions data, companies can be transparent and follow up with carbon neutrality targets based on their emissions. Being fully transparent with their data and future plans can improve a company’s reputation and increase brand loyalty, especially now, with the increasing threat of climate change and the increased awareness from the public.
4. Existing benefits of reporting and reducing carbon emissions
There are numerous financial and non-financial benefits of reporting and reducing carbon emissions, including catering to your stakeholders, attracting new investments, improving the brand image and gaining a competitive advantage. Read our previous blog post to learn more.
What does the future of sustainability reporting look like?
As the threat of the climate crisis becomes more prominent, it is likely that sustainability reporting will become mandatory for most companies. For businesses where it is not mandatory yet, they can still benefit from the savings, loyalty, and streamlined processes that result from disclosing their carbon emissions.
According to KPMG, ‘Any leading company that does not yet report carbon targets is now clearly out of step with global good practice’.
The continuing increase in sustainability reporting will likely further influence other companies to disclose their emissions as well.
How much are companies actually disclosing?
The Corporate Climate Responsibility Monitor, which assesses the transparency and integrity of companies reporting habits, remarked in their most recent publication (2022) that emissions data is not always reported in a transparent manner, and has potential to be misleading.
The overall increase in sustainability reporting is positive, however, some companies omit to report their scope 3 emissions data as it is ****optional to report under the Greenhouse Gas Protocol — meaning that their reported emissions may be much less than their actual emissions. In fact, scope 3 emissions usually cover over 70% of a company’s total emissions, depending on the specific business activities of the company. The exclusion of scope 3 emissions is very common but it is also very difficult and requires precise understanding and documentation of the supply chain.
According to Scope ESG (February 2021), more than ⅔ of the world’s 2,000 largest companies (by market capitalisation) reported no or incomplete information for scope 1 and scope 2 standards set by the GHG Protocol. Additionally, the study showed that more than ¾ of the companies studied disclosed no scope 3 information at all.
If you remember the numbers from KPMG’s report mentioned above, you might be thinking — “it doesn’t add up”. How come the rate of sustainability reporting mentioned by KPMG is so high (up to 96% for G250 companies) when the number of companies that report no or incomplete information, according to Scope ESG, is so high as well (~66%)? Even if we take into consideration the difference in the size of these samples, there is still a significant discrepancy.
Assessing how many companies disclose their sustainability data is highly challenging, let alone finding out what their actual emissions are. The lack of transparency and standardisation is a huge obstacle in the sustainability space.
Luckily, more and more innovative ClimateTech products are being launched to make it as easy as possible for companies to take advantage of the GHG Protocol and accurately report their sustainability data. At Connect Earth, we provide the tech infrastructure to enable rapid iteration of these innovative products.
Get started with Connect Earth!
At Connect Earth, we aim to foster innovation in the climate space by removing one of the most challenging barriers: the aggregation and standardisation of emissions data. We empower businesses to innovate at a much faster rate by doing the heavy lifting for them through our climate tech infrastructure.
Reach out to us if you think Connect Earth can help your business!
This article was written by Sarah McQuistan, Environmental Data Analyst at Connect Earth.
Originally published on https://www.connect.earth/blog/
