"Phone-Book" Annual Sustainability Reports Need to be Replaced with Focused, Data-Driven Communication Tailored for Stakeholders

Working group of corporate executives provides insights on how companies can tell their sustainability story more authentically, reliably, and effectively

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The Conference Board

Aug 12, 2021, 10:00 ET

NEW YORK, Aug. 12, 2021 /PRNewswire/ -- As companies focus on a core set of sustainability issues on which they can truly have an impact, they should consider retiring the conventional, "phone-book"-sized CSR, sustainability, and ESG reports. Such reports can serve as central repositories of information, but companies need a more tailored approach to address the key stakeholders, says a new study by The Conference Board ESG Center. The research examines how companies can tell their sustainability story more effectively, authentically, and reliably to multiple audiences.

As The Conference Board study explains, lengthy reports fail to meet either the company's objectives or the distinct needs of today's employees and customers—who need relatable narratives that motivate or inspire them—and investors and business partners who crave data to make decisions. Rather, companies should focus on explaining how sustainability is integrated into their business and tell their story in a tiered manner: a core narrative featuring a company's highest priorities and supplemental, searchable, data-heavy information.

These insights and more are the output of a working group convened by The Conference Board involving more than 340 ESG and communications executives. The report overview captures key insights from the working group sessions, while the accompanying four practical guides provide deep dives for companies on: 1) determining what to include in their sustainability story; 2) telling their sustainability story authentically and effectively; 3) telling their sustainability story reliably; and 4) dealing with evolving regulations, reporting frameworks, and ESG rating firms. The Conference Board produced the research in collaboration with Weil, Gotshal & Manges LLP.

"Looking ahead, the two biggest challenges companies will face in telling their sustainability story are disclosure regulations and accommodating their business partners' requests," said Paul Washington, Executive Director of The Conference Board ESG Center. "Unlike prior waves of disclosure regulations, US and EU regulators are looking to impose similar obligations on both companies and investors. Given this common ground, the corporate and investment communities should work together to have more impact on the final rules adopted.

At the same time, each company is hearing from its business suppliers, partners, and customers who want the company to help them achieve their sustainability goals. Companies are facing a looming tsunami of often highly detailed information requests from their business partners on environmental and social topics. To avoid the system being overwhelmed, companies should start—if they have yet to already—engaging with their business partners and with industry coalitions to set reasonable expectations."

A selection of key insights for companies looking to tell their sustainability story more effectively, authentically, and reliably include:

Determining what to include in a company's sustainability story:

Lengthy CSR/Sustainability/ESG reports are becoming a thing of the past. Companies are looking to focus on the handful of issues that truly matter to their long-term future and have the greatest impact on stakeholders, society, and the environment. At the same time, investors, reporting frameworks, and ESG rating firms are looking not just for a narrative that describes the company's main focus areas, but also for timely data on a range of topics.
Companies can better tell their story by using a tiered approach, including a main narrative focused on the highest priorities. The main narrative should incorporate supporting data that focus on the few highest-priority issues that can be adapted to different audiences. They can tell their story for the next tier of issues in stand-alone documents or in a searchable database; these offer narrative context but are data-heavy and provide a deeper dive on specific topics.
Companies should take a fresh look at their analysis and process for determining what issues meet their disclosure standard. While most companies prioritize issues based on their importance to the business vs. importance to stakeholders, the framework has limitations: issues of importance to the "company" and to "stakeholders" are likely to converge over time, and a framework focuses on importance to stakeholders without explicitly assessing impact on stakeholders, society, and the environment. Companies may therefore want to use a variety of frameworks, including the framework and "heat map" traditionally used in risk management. External reporting frameworks (e.g., Global Reporting Initiative, Sustainability Accounting Standards Board) can be useful guides for determining or confirming material issues, but they should avoid using these frameworks as their primary input.
Regardless of the disclosure standard and analytical framework that companies use, stakeholder input is vital. While companies will inevitably need to determine how much weight to give to different stakeholders' views, they should seek broad input, including from stakeholders outside the US. They should consider not just what's important today, but what's likely to be important in the future. Companies are dynamic enterprises, stakeholder expectations are constantly evolving, and the process for determining what to include in their sustainability story should be equally dynamic and forward looking.

Telling a company's sustainability story authentically and effectively:

Companies should align their sustainability story with their business strategy. To ensure authenticity, a company's sustainability story should be anchored in their business strategy, ambition, and culture—linking to business strategy is the biggest challenge for companies, the working group found. To do so, companies must ensure their sustainability story matches how it makes business decisions, runs its operations, and approaches risk management and product development/innovation.
While a company can choose to engage its employees in a variety of ways, engaging employees is crucial. Employees can offer a "reality check" for keeping a company's story authentic. They will ultimately be responsible for carrying out much of a company's sustainability story in their countless actions and behaviors. They can be powerful ambassadors—especially if the story passes their gut check. Employees can also be a source of the language, stories, and images in sustainability reporting.
Perhaps the biggest "sleeper issue" facing companies is accommodating business partners. Every firm is pursuing its own sustainability story, so businesses expect their suppliers and partners to help them meet their own goals. This can be positive, as sustainability can be a competitive advantage. But it can also be chaotic. The key right now is dialogue with your business partners to set reasonable expectations. Sometimes this can be done industry-wide, but often firms within an industry don't agree on either the key sustainability issues or the ways to address them. So, one-on-one dialogue with business partners is going to be necessary.

Telling a company's sustainability story reliably:

Embracing balance in disclosures can mitigate several risks. Many companies resist including negative information in their disclosures. But there are legal risks associated with both disclosing negative information and failing to disclose such information or overstating the positive aspects of their stories. Neglecting or downplaying negative sustainability information risks companies' credibility with their stakeholders, and may make them susceptible to investor accusations of greenwashing. While mindful of legal concerns, reporting should be balanced and transparent. It's generally better for a company to put negative information in context than to leave it to others to build their own narrative based on it.
Companies should ramp up the use of external sustainability assurance services to ensure the reliability of their reporting. External assurance gives investors (as well as business partners and regulators) confidence in the accuracy of a company's data, and can improve its external ratings. External assurance can also strengthen a company's internal controls and reporting systems, and drive better decision-making based on higher-quality sustainability information. But this process can be expensive and time consuming, so companies may wish to increase the use of assurance services over time.

Dealing with regulations, reporting frameworks, and ESG rating firms:

Companies should prepare for increased and multitiered regulation of ESG disclosure. Policymakers in both the EU and US are looking for increased disclosure not just from companies, but also from investors and intermediaries such as credit rating agencies. Companies should build coalitions with investors and other stakeholders, as they'll likely find some common ground in addressing disclosure regulation. Future regulation is inevitable, and private sector collaboration can help to make it more beneficial.
A potential pitfall: chasing after all the ESG rating firms. ESG rating firms are proliferating, so companies should be strategic about which rating organizations they engage with and how. The biggest problem companies have with ESG rating firms is the time and resources required to respond to information requests. They should focus on a few, comply with a few others, and not worry about the rest. This approach requires an internal process and fortitude. Companies should consider industry-based discussions with investors to reduce their reliance on intermediaries.

"Effective sustainability storytelling rests on the ability of companies to strike the right balance between satisfying external requests for information and remaining focused on the sustainability issues that truly matter to the company," said Thomas Singer, a Principal Researcher at The Conference Board ESG Center and author of the report. "Doing so authentically means those stories should not only have the broad backing of employees, but also be anchored in the company's business strategy."

To request copies of the research, media can contact The Conference Board.

About The Conference Board ESG Center
The Conference Board ESG Center serves as a resource, platform, and partner to help Member companies address their priorities in corporate governance, sustainability, and citizenship. www.conference-board.org/ESG

About The Conference Board
The Conference Board is the member-driven think tank that delivers trusted insights for what's ahead. Founded in 1916, we are a non-partisan, not-for-profit entity holding 501 (c) (3) tax-exempt status in the United States. www.conference-board.org

About Weil, Gotshal & Manges LLP
Founded in 1931, Weil, Gotshal & Manges LLP has been a preeminent provider of legal services for the past 90 years. With approximately 1,100 lawyers in offices on three continents, Weil has been a pioneer in establishing a geographic footprint that has allowed the Firm to partner with clients wherever they do business. The Firm's four departments, Corporate, Litigation, Restructuring, and Tax, Executive Compensation & Benefits, and more than two dozen practice groups are consistently recognized as leaders in their respective fields. Please see www.weil.com for more including, including awards and rankings.

SOURCE The Conference Board