2024 signalled a significant step-change in global sustainability reporting. With the EU’s Corporate Sustainability Reporting Directive (CSRD) coming into force^[1], alongside the announcement of new sustainability standards by the IFRS^[2]. Taking a more strategic approach to disclosures has escalated up the agenda of C-suite leaders and board conversations. Aligning corporate disclosures to the new standards has added a layer of complexity to how companies should approach reporting, meaning a well-thought-out sustainability disclosure strategy is key to navigating the current landscape and building trust among stakeholders.

While the IFRS S1 and S2 standards remain voluntary for now, many jurisdictions have committed to adopting these into mandatory non-financial reporting, including the UK, which will announce updates to the upcoming Sustainable Disclosure Standards (SDS) summer 2024^[3]. Alongside CSRD, these standards demand a more mature approach to reporting than the traditional collection of environmental, social and governance (ESG) data and annual reporting.

The standards are primarily aimed at financial markets, striving to drive transparency and comparability through a global base of non-financial information disclosed by issuers that will inform better capital allocation decisions.

The goal is to facilitate the elimination of greenwashing^[4], social washing^[5], and unrealistic long-term target setting. This is not only essential to solving the climate crisis but also reducing investment risks in businesses that are not prepared to adapt to the impacts of climate change and its associated social impacts.

For issuers, this will require businesses to become far more strategic about how they approach reporting.

Collectively these standards require disclosures to be aligned to material topics, identified through a double materiality assessment; the communication of how companies are currently mitigating sustainability-related risks and potentially, as is the case for CSRD; the disclosure of over 1000 new data points. Failure to align with these standards not only risks non-compliance but also the credibility of the organisation and the trust of capital markets.

These regulations encourage companies to integrate sustainability across every function. Ultimately, this will likely drive better sustainability performance and, in turn, long-term financial resilience to climate change. However, presenting a truly integrated business, where sustainability is at the heart of operations will require a different tactic from the one-stop-shop sustainability report approach. Not only do these standards require a significantly larger data set, but they also mandate a risk management-focused approach that involves the engagement of all senior leaders. Engaging legal teams to ensure ESG is included in compliance scans will also support a long-term view.

The good news is that CSRD and IFRS Sustainability Standards bring together many of the most common ESG frameworks, including GRI, TCFD, SASB and CDP, meaning that businesses with a history of reporting against these standards should be well prepared. However, with tight timelines and more standards on the horizon, most companies can’t afford to wait until year end to begin preparing sustainability disclosures. The methodology requirements mean that companies should be acting now. Focusing on sustainability-related risks and opportunities and aligning actions, disclosures, and strategies to mitigate material risks and realise opportunities.  and aligning actions, disclosures, and strategies to mitigate material risks and realise opportunities.

Here are some top tips for taking a more strategic approach to reporting:

1. Perform a mid-term horizon scan: understanding what is coming for your business is an essential first step. Undertaking a 2–4-year horizon scan will provide a clear picture of the scale of strategic planning and action required.
2. Aim to drive business resilience, not compliance: Compliance with regulations does not drive investment or improve corporate reputation. Maximise the value of frameworks and standards with the aim of improving business performance and reputation, and compliance will naturally be achieved.
3. Look into the crystal ball: The direction of travel has been quite clear: where there is a non-financial risk, expect regulation. Attending conferences and webinars will give you a clear idea of the future of global regulations.
4. Aim to give your stakeholders the information they need: As the sustainability reporting landscape matures, the volume of information to be reported grows. Many companies are shifting their methodology away from producing a single annual ESG report to adopt more targeted stakeholder communications on sustainability matters. From fact sheets to microsites, a more strategic approach to communications that considers what information is needed and how best to share it, will provide the right information to the right groups. This approach also gives businesses the headspace to produce more attractive and impactful sustainability narratives that inspire and engage a range of stakeholders.
5. Engage and share: Taking a strategic, long-term approach will build trust and credibility with stakeholders, particularly capital markets, who recognise that the speed at which regulations are evolving puts investments and assets at risk. Companies that communicate a more measured, mature approach to disclosures will ease investor concerns.
6. Keep a global outlook: As regulations are adopted by new jurisdictions, compliance may become complex, particularly for multinationals. However, adopting interoperable standards, such as CSRD or IFRS, and ensuring the full geographic scope of the business is included, will likely support an easy transition to upcoming new global standards.

Over time, businesses that adopt a more measured approach to sustainability reporting will create long-term value, trust, and credibility with a diverse range of stakeholders. It will facilitate the inclusion of the whole business, facilitating the transition to a more integrated business where sustainability is a core part of operations. The value of creating a strategy for sustainability disclosures and reporting is intrinsic to the long-term success of businesses. Embracing sustainability is no longer optional; it is a strategic imperative.

Author: Ed Packshaw, Head of Reporting and Communications, Simply Sustainable

For more information on how Simply Sustainable can help with your disclosures strategy, please get in touch with one of our friendly experts here.

[1] https://finance.ec.europa.eu/news/commission-adopts-european-sustainability-reporting-standards-2023-07-31_en
[2] https://www.ifrs.org/news-and-events/news/2023/06/issb-issues-ifrs-s1-ifrs-s2/
[3] https://www.gov.uk/guidance/uk-sustainability-disclosure-standards
[4] https://www.edie.net/greenwashing-hydra-new-report-warns-of-six-types-of-greenwashing-from-corporates/
[5] https://www.morningstar.co.uk/uk/news/226070/youve-heard-of-greenwashing-now-meet-social-washing.aspx