HOW TO IMPROVE ESG REPORTING WITH A SMALL IN-HOUSE RESOURCE
Jennifer Human, senior account manager at Lyonsbennett shares some key tips for smaller-cap companies to effectively integrate ESG reporting into business strategy and keep up with sustainability targets.
A client today described ESG reporting as “flavour of the month” – and quickly and sharply corrected themselves. Despite some commentators complaining of the “woke-minded nightmare” of increasing ESG demands – like it or not, the cultural shift towards sustainability, responsible investing, and long-term thinking is here to stay. Sometimes it can feel hard to keep up with the expectations from regulators, investors and ratings agencies – sinking in the alphabet soup. To stay afloat, we’ve collected some tips for some smaller-cap companies.
The best reporting has a long-term view and the same is true for sustainability reporting. We’re all on a journey, so set out what you’ve done already, and what you have put in place to develop your reporting going forward, including targets for implementation. This could be achieved through a timeline, so progress to this point, and going forward, can be monitored.
Remember your sustainability approach should be dynamic, not static – and even the biggest companies are improving their approach all the time. Take the time to think about the specific impacts material to your company’s sphere, how they can be improved in the long term, and how you plan to get there. Crucially, don’t forget to detail how you will measure progress along the way. We also often recommend shifting from the present tense to support this: “We divert c.1,000 metric tonnes from landfill per year” is a far less engaging statement than “Last year we diverted 980 metric tonnes from landfill, and in 2022 we’re targeting over 1,000 tonnes in line with our long-term target of sub-500 tonnes.”
Ownership of sustainability reporting is a big job, so setting up a committee with regular meetings can structure your approach – from assigning responsibility, regular updates, troubleshooting, to ensuring data gathering is rigorous enough. Sitting down and working through the human, financial, and natural capitals spearheaded by the integrated reporting movement can be a useful activity to create a mind-map of the interconnectivity of resources and your business to kick off your sustainability approach.
Employing a materiality matrix can help allocate resources effectively to those areas that have the biggest impact. For example, waste or water usage metrics may not be material for a REIT operating from a single office, but the future-proof sustainability features of those buildings you invest in will very much be of relevance to the company, investors and tenants.
The numbers reported can take many forms: from KPI-style charts to diagrams to infographics to ‘raw’ Excel spreadsheets online. They can be brought to life and supported by using the third-party voice in your communications. Photos, interviews and experts from employees’ surveys or inductions can be a high-impact way of communicating how employees are treated and how your company invests in its often-cited greatest resource. Using comparisons is another way of making the positive numerical effects tangible to the non-expert reader, i.e. “Our portfolio is forecast to result in the avoidance of over 387 ktCO2e per year, the equivalent of taking almost 178,000 cars off the road.”
To really make it matter, adding a sustainability-themed pillar to your strategy and/or variable executive remuneration can be a sure-fire way to bring sustainability targets to the forefront of how the business operates, turning intention to action. As long as the targets are stretching yet achievable, adding performance-linked remuneration for ESG targets can be a meaningful management incentive and demonstrate how seriously it’s taken internally. It can also be incorporated into your company purpose to give focus to internal and external audiences – and to provide a clear direction during decision making.
All in all, the shift towards sustainability is a positive thing and despite its demands, I believe it inspires an interconnected approach that’s genuinely beneficial to the business (and the wider stakeholders and markets). Of course, the agenda is changing more rapidly than ever and we all hope that the International Sustainability Standards Board and EU Taxonomy will soon be able to take steps towards implementing much-needed global ESG standards.
In the meantime, it can help to widen your perspective. Sustainability reporting is not the end in itself. The ideal scenario is that sustainability is an integrated consideration in your business model, and sustainability reporting merely reflects this, making it digestible and comparable to the wider audience.
Companies may not realise they already have a lot in place already: anything that maintains or improves the environment you operate in for the long term, keeps your key people working with your company, and how the company monitors and manages those structures and qualities – can be articulated as your “E”, “S” and “G” approach. Consider your position in the ecosystem – bodies who have mutually beneficial relationships with other parties; and those who contribute to, as well as draw from, the environment around them, are likely to last a lot longer. Ultimately, these non-financial and intangible drivers create a resilient company, with long-term tangible financial effects (and a strong reputation).
We don’t think a small size should stand in the way of success. If you’d like to hear how lyonsbennett can support your sustainability reporting, from benchmarking, consultancy, legislative research, to web and print design, please get in touch.