With a topic like sustainability and climate, you might think it’s more likely that a director of engineering or head of community outreach would be involved in a company’s sustainability report than the finance team. While the former roles can certainly play a part, the latter can have an outsized impact.
So what is sustainability reporting in accounting, and what role does a company’s finance team play in the grand scheme of enterprise climate action? Sustainability reporting—often referred to as ESG reporting in corporate finance—is the process of synthesizing and dispersing a company’s financial performance to enact business decisions that benefit the bottom line and the planet.
Let’s zero in on ESG reporting in corporate finance to understand its importance, formatting requirements, and how to get started.
What is sustainability reporting?
In its simplest form, a sustainability report is a business’s disclosure of its environmental and global impact. Yet independent sustainability reporting has taken on various meanings depending on industry, product, and purpose. For this reason, many companies opt to focus on ESG disclosures.
ESG disclosures are public reports that detail a company’s environmental, social, and governance (ESG) impact. The benefit of sustainability reporting in this manner is that it communicates progress toward a business’s targeted ESG goals.
They’re an important barometer for business stakeholders, investors, suppliers, and customers to measure a company’s value, trust, and accountability.
Sustainability reporting for accounting
Sustainability reporting in accounting draws a direct through-line from a company’s climate impact to its financials.
In the same way a financial report evaluates risks, value, and benefits, climate action is assessed in parallel—and reported on in a language every business-minded person understands: capital.
Take, for example, an investment in solar panels to power an office building. A sustainability report assesses the upfront cost and long-term benefit; this links financial reporting and sustainability action. In other words, a cost-saving argument for a more energy-efficient option gets a seat at the table.
Types of sustainability reports for finance teams
Although a sustainability report’s format may depend on the organization’s industry or country, there are a few best-known formats for sustainability reports, which include:
- Sustainability Accounting Standards Board (SASB) and the Taskforce on Climate-related Financial Disclosures (TCFD) are investor-driven disclosures. SASB is industry-specific ESG, while TCFD is cross-industry and limited to climate.
- Global Reporting Initiative (GRI), which is a broader sustainability framework and is not anchored in financial materiality like the SASB and TCFD.
Why is it important for finance teams to know?
Corporate sustainability reporting is only becoming more accepted and, in many sectors, required. In the business world, finance teams are uniquely positioned to transform abstract concepts, such as sustainability goals, into numbers that decision-makers can digest.
Moreover, if a performance report does not cover sustainability in the coming years, it will undoubtedly lack risk assessment and opportunity identification.
Here’s why now is a crucial time for sustainability reporting in accounting:
- Requirements are changing – It’s likely that soon the U.S. Securities and Exchange Commission (SEC) will require public companies to report on their emissions and other climate-related risks. With regulations narrowing and the public eye seeking more corporate accountability, these kinds of requirements will only increase over time.
- Demand is increasing – As the climate crisis continues and the public becomes increasingly aware of how enterprises impact the climate, the demand for transparency on climate action from organizations will continue to increase. The pressure lands largely on finance teams to disperse this data in a consistent and comparable way.
- Benefits are clear – For any financial arm, the long-term benefits of this kind of financial reporting are evident. The more readily available an organization’s financial goals are, the easier they are to invest in—by both investors and consumers. ESG disclosure standards can help build brand credibility, strengthen partnerships, and increase brand equity.
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How to get started with sustainability reporting in accounting
If your business has never reported on climate, governance, or social impact numbers before, you may be unsure of how to get started.
Prior to recent consolidations, one of the better-known formats of a sustainability report to begin with was from the Sustainability Accounting Standards Board (SASB). However, the VRF (creator of SASB) has consolidated with the IFRS, and has established a new sustainability standards board, the ISSB.
The intention is for the ISSB to deliver a comprehensive global baseline of sustainability-related disclosure standards that provide investors and other capital market participants with information about companies’ sustainability-related risks and opportunities to help them make informed decisions.
The new IFRS standard will draw heavily from the existing SASB standards and TCFD, and may also incorporate components of GRI. This consolidated standard is meant to provide consistent and comparable reporting across the globe.
What to include in a sustainability report
In addition to leaning on the standards and framework of SASB, businesses reporting on sustainability should plan to include data from these three categories:
- Environmental – This section of the report should detail the organization’s relationship with natural resources and carbon emissions, and projective goals for future improvement.
- Social – In this section, the report should cite ways the organization contributes to its local and global community. Be sure to drill the data down to numbers, like investments or charitable contributions, but feel free to include visuals for context as well.
- Governance – In this section, the report should detail the relevant stakeholders that decide on the direction of the company (board of directors, executive team, etc.). This should also spotlight the ongoing and future initiatives the company intends to pursue, like clean energy initiatives.
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It’s an exciting time for climate action in the enterprise space, and finance teams have the opportunity to use monetary language to shed light on how businesses can enact positive change for the planet.
As you build a sustainability report for your business, get support from Sustain.Life’s sustainability management software. We’re making it simpler and more accessible for businesses to understand and report on their environmental impact. From streamlined dashboard measurements to compliant reporting templates, it’s never been easier for businesses to reach their net-zero goals.
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Sources
1. GEP. WHAT IS SUSTAINABILITY REPORTING? https://www.gep.com/knowledge-bank/glossary/what-is-sustainability-reporting Accessed February 28, 2023
2. Sustain.Life. Why accounting and finance are sustainability’s front line. https://www.sustain.life/blog/accounting-finance-sustainability Accessed February 28, 2023
3. SASB Standards. SASB Standards & Other ESG Frameworks. https://www.sasb.org/about/sasb-and-other-esg-frameworks/ Accessed February 28, 2023
4. ESG The Report. How to Write a Sustainability Report. https://www.esgthereport.com/what-is-esg/the-g-in-esg/how-to-write-a-sustainability-report/#the-3-elements-every-sustainability-report-should-include Accessed February 28, 2023
