The best business motivation to adopt changes towards a more modern economy is regulation. Because when the Law requires us, we are immediately motivated to comply with it.
Law 11/2018 is already in place, requiring a large number of Spanish companies to be transparent about their social responsibility practices, policies and objectives, with a wide set of ESG indicators to be completed.
But the regulatory requirement in terms of transparency and commitment to sustainability has not increased since then, and on November 10, the European Parliament approved the Corporate Sustainability Reporting Directive (CSRD), which increases the responsibilities of companies in their ESG accountability and also requires them to report on the effect of their activities on people and the environment. What's more, in November EFRAG approved the first set of EU Sustainability Reporting Standards (“ESRS”).
European regulation has already done its job, and now it is companies that have to decide if this effort is simply going to be a cumbersome process or they are going to take advantage of it to create value in their brands, taking the opportunity to show the strengths in terms of sustainability that allow us to add value to the company by reducing perceived risks and designing solid strategies that can take advantage of these opportunities.
That is, we can limit ourselves to complying with the Law or making a Report that truly has the capacity to generate value for our brands. These are the five points you have to keep in mind to make a good Sustainability Report:
1. Do a previous study of dual materiality. Before deciding on the form and contents of the Report, research the issues that are most relevant to your company's stakeholders and which ones generate the most social and environmental impact, and at the same time those external ESG aspects that most influence your company. In this way, you will include in your report both the relevant aspects of sustainability that generate “inward impacts” and those that generate “external impacts”.
2. Decide the format in which you are going to report before you begin. In terms of sustainability, there are three fundamental frameworks: sustainability reports, integrated reports and non-financial statements. Although only the last one is mandatory in Spain, you can choose more modern formats, more similar to those of your competition in other countries, and which will allow you to structure the information in a way that is more in line with the general business strategy. The Integrated Report is currently the most used format by responsible companies with the most links to international financial markets, as is the case of most companies in the bex35. In addition, since the CNMV establishes very clear ESG aspects to be communicated in the Management Report, the inclusion of everything in the same format is more convenient and gives a greater sense of strategic and communicational coherence.
The choice of format will condition the content structure and the people in your company who will be involved in the process.
3. Decide the standards you are going to use to present your data. It is important to use international reporting standards for information on company sustainability, since many of the interest groups are either international or need to compare our data with an international environment. There are several publication standards for internationally recognized sustainability issues; United Nations Global Compact, Sustainable Development Goals (SDGs), Paris Agreement on climate change, United Nations Guiding Principles, standard (ISO) 26000, and above all GRI (Global Reporting Initiative). Try to publish in the GRI format since the 82 requirements of the mandatory reporting standards in the EU (EFRAG) are fundamentally based on GRI.
4. Keep in mind that your sustainability context must take into account the entire value chain. When a consumer decides to buy your brand, they are also buying from your suppliers. Take responsibility for them because your customers have already put it on you. If, for example, recycling has emerged as a very material topic in your business, don't forget to explain what you're doing to improve the recycling capacity of your suppliers and how you're measuring it. Your image and purpose must be consistent with the way your suppliers work and the Sustainability Report is where you will be able to highlight it.
5. The previous year's report is the first step in the next year's report.. Once published, don't forget to provoke a dialogue about the Report with your stakeholders. The systematic participation of interest groups, properly executed and analyzed, will help you maintain continuous learning in your organization about the social and environmental environment in which it operates and, in addition, it will strengthen trust and improve accountability. With all this information, implement a Sustainability master plan to manage what you can (and should) improve and that will be the basis of the following year's Report. Commitment is rewarded in your brand image.
And an extra ball. Use the Report to anticipate ongoing regulatory changes. Think that we are at a time when transparency and comparability of data are increasingly in the spotlight of public institutions. What is now a debate between public experts may end up being a political debate and promote new regulation. Take advantage of the dialogue with your stakeholders to better understand these debates and how your company can help before it's too late. The Sustainability Report, in any of its formats, is a good place to generate financial value in your company.
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Emilio Vera Martín
Sigma Rocket senior consultant
