Death, taxes, and sustainability reporting: how can you turn more regulation to your advantage?

Sustainability regulation is a fast-evolving landscape with the planned introduction of comprehensive mandatory reporting regimes across both the EU and the UK by 2025. Arguably, given the limited success of last year’s COP27, it is more important than ever in legislating for the private sector to demonstrate accountability in this area.

Ultimately the aim is to help companies become more transparent about the progress they’re making as they transition to Net Zero. And, by putting sustainability information on an equal footing with financial information, supporting and growing the green investment market. Latest updates however suggest that the financial sector might be excluded from the regulatory requirements, at the discretion of member states. This is according to a recent decision by the European Council in early December last year.

There’s no doubt that increased reporting is going to be a burden, particularly for companies with interests in both the UK and EU. But they should see this as an opportunity to enhance their reputation by proving their commitment to acting on ESG (environmental, societal, and governance) issues.

What businesses should expect to see from evolving regulation

In the UK, the Transition Plan Taskforce?(“TPT”) recently published for consultation its Disclosure Framework and Implementation Guidance. It includes recommendations for businesses and financial institutions on how to develop credible climate transition plans to reach Net Zero targets. Later this year, the TPT plans to publish a range of?sector guidance for companies and financial institutions. Reporting is also expected to become mandatory across the UK economy by 2025.

The TPTs’ recommendations are based on?three key principles - ambition, action, and accountability - and?five key pillars, one of which is Engagement Strategy. This means that companies will need to engage with their value chain, and with industry and government.

?For its part, the European Union has enacted its own Corporate Sustainability Reporting Directive (CSRD), which should come into force in January 2024.?The CSRD introduces double-sided reporting, which covers both the impact of climate change on a company and, significantly, that of a company’s activities on the environment. To allow for easier checking and comparison, companies will need to publish financial and sustainability information in the same report. While there doesn’t appear to be concrete asks in the CSRD in terms of stakeholder engagement, there is an opportunity for it to play a meaningful role.

?Increased standardisation across reporting regimes should make life simpler and enhance the impact of sustainability-related disclosures. However, because this is some way off, companies could benefit from taking early action to ensure that they can effectively engage with stakeholders.

?From a comms point of view, what can be done to prepare for a significant increase and – more importantly - regulated sustainability reporting?

Some pointers:

1.??????Build a deep understanding of the concept of sustainability and push for board-level involvement, to:

• Drive climate risk assessments and TCFD / CRSD scenario modeling, to help identify engagement threats and opportunities.
• Help drive company-wide understanding of sustainability, and the role of reporting in helping reach Net Zero targets.?

2.??????Understand your audiences (investors/regulators/end-users/NGOs/ media) and use the metrics, indicators, and content that will most resonate with them, avoiding a one-size fits all approach.

• For investors and the media, data presented in table/chart form – particularly in annual reports – needs to be robust but visually engaging (the Financial Conduct Authority in the UK has reported a rise in the number of companies reporting on their environmental impact, but this isn’t necessarily reflected in the quality of reporting).
• Employees and end-users will find clear storytelling more compelling, alongside strong visuals and real-life case studies.

3.??????Be clear about transparency – ultimately, the aim of environmental reporting is to show progress, year on year, and against industry peers. ?At first, data may spotlight challenges, even ‘failures,’ but these shouldn’t be disregarded as every company will be experiencing similar.

The world is in a state of flux with individual nations, businesses, and civil society facing huge challenges. But there’s one absolute certainty – that of the need for organisations to play a greater role in tackling the climate crisis, and for them to embrace constantly evolving ESG reporting regulation. An additional burden- absolutely! But by preparing well they can better engage with their audiences – from employees to policymakers to employees – and have a chance to really push forward with tackling some of the big societal, environmental, and governance issues of the day.

Inès Gentil , Associate Consultant, Fourtold