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Two Steps Forward

How the new sustainability disclosure rules can work for you

Reframe your reaction to the new reporting regimen. Here’s how it can benefit you — and your company.

Growing plants on wooden table.

Photo via Pexels/cottonbrostudio

You’re not alone if you greeted the June 26 release of the IFRS Sustainability Standards the same way you’d welcome an earthquake (under your desk, holding on). Many corporate sustainability practitioners have been bracing themselves on the heels of the Jan. 5 Corporate Sustainability Reporting Standards drop (applying to 50,000 companies, with 10,000-plus outside the EU), and in light of the SEC climate disclosure requirements for public companies expected in the fall. 

At our GreenFin 23 conference last month, disclosure was on the lips of everyone from Rhode Island Sen. Sheldon Whitehouse to Shirley Lu, assistant professor of business administration at Harvard Business School, to Brendan Morrissey, Walmart’s vice president, ESG. But while many speakers at GreenFin proclaimed a reassuring "you got this" from the stage, practitioners in the audience weren’t so sure. 

Some of the top worries I heard included: 

  • New compliance structures and frameworks raise the stakes significantly in a field where voluntary (ergo, occasionally squishy) reporting has been the norm. Consequences of not complying with CSRD, for example, will be up to EU member states, and will range from public shaming to cease-and-desist orders to fines.
  • While simplification and harmonization may happen in the medium term, for now the disparate standards add complexity and uncertainty for disclosers. 
  • Human and technological resources to learn, execute on and adapt to this new paradigm are scarce — and as a result, projects that deliver tangible climate, nature and community benefits will suffer (and so will sustainability staff).

Further, in many companies, these new disclosure rules hit a nerve not because there is anything much to hide, but because they call for cooperation and lock-step alignment in precisely the areas where there is most often dysfunction: Misalignment between sustainability and other key business functions such as finance, legal and risk. Disarray behind the shiny, corporate-comms-approved veneer of the typical annual sustainability or ESG report. Shallow commitments where a deep sustainability strategy with buy-in from the Board on down should be. 

That doesn’t even include the many companies without an existing materiality assessment; accounting for GHG emissions in homespun spreadsheets or not yet accounting for them at all; not engaging in third-party verification or attestation of their disclosures; inexperience with Task Force on Climate-related Financial Disclosures reporting; or lacking budget for a consultant or a data platform. 

The new disclosure paradigm may force companies to clean up the house the way I do when surprise guests call from down the block to say they’re dropping by — that is, quickly, but not thoroughly. 

But the new sustainability reporting rules can be a strategic opportunity, too

An ESG professional I spoke with who didn’t have corporate sign-off to be quoted on the record offered a positive and useful way to reframe that disclosure panic. 

In essence, he said, take a page from companies that have reported ESG data en route to an IPO, and make disclosure serve you. Recent studies demonstrate that solid voluntary ESG disclosures of environmental and social issues material to the business (such as emissions, human rights, and supply chain considerations) can help fledgling public companies’ valuations — even if you’re not Allbirds.

I found the redirect inspiring. Rather than a test you cram for, it’s possible to consider disclosure a talent show, and start rehearsing. You typically can’t pick and choose which metrics you respond to, but you can choose what you focus your limited energy and time on in the run-up, and make it count.

  1.  Don’t just fill in the blanks. Develop insights you can draw on outside the disclosure context: what’s material, what risks are relevant and what your stakeholders care about. All of these elements will be unique to your business. 
  2. Filling in the blanks does, of course, matter. Lean on your voluntary disclosures — if you’ve reported to CDP, you are at least part way there.
  3. Get cozy with Comms, Legal, Finance, Risk, etc., and build a playbook together so none of what you learn is lost. It may be your company’s first rodeo, but it won’t be your last.

This much is clear: Disclosure will bring more attention to your work, especially internally. Focus on what matters, and the result could almost make it worth the pain. 

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