7 Misconceptions About Sustainability Reporting Business Leaders Need To Know

sustainability
sustainability

Investors and customers should know how their investment and purchasing decisions affect the environment, the employees of the businesses, and the communities where the company operates. Until recently, most companies published information on sustainability performance on a voluntary basis and was not subject to third-party verification. Therefore, those submissions were not fully reliable. The Corporate Sustainability Reporting Directive (CSRD) opens a new chapter for sustainability reporting by introducing requirements aimed at enhancing transparency and providing stakeholders with more clarity and high-quality information. 


Sustainability reporting enables companies to communicate their environmental, social, and economic impact, risk, and performance as well as their strategies and goals for creating long-term value. As sustainability reporting becomes more prevalent, it also requires more attention and involvement from the top management of the companies. C-level executives are increasingly responsible for setting the vision, direction, and priorities for sustainability, as well as ensuring the alignment and integration of sustainability across the organization. Moreover, C-level executives are expected to engage with various external stakeholders, such as investors, regulators, customers, and the media on sustainability issues and demonstrate their leadership and commitment.

Several surveys and studies have confirmed the growing significance of sustainability reporting for C-level executives. According to the KPMG 2024 CEO Outlook Survey, ESG initiatives are their top operational priority, with stakeholders expecting businesses to provide more transparency through their ESG reporting.

These findings indicate that sustainability reporting is not only a compliance exercise or a public relations tool, but also a strategic imperative and a competitive advantage for companies. C-level executives who recognize and embrace this reality can drive innovation, growth, and resilience in their businesses while creating positive impacts for society and the environment. To embrace this reality more completely, we must do away with the myths surrounding sustainability reporting.



Myth 1: Sustainability reporting is only about environmental impact.

One of the main objectives of the Corporate Sustainability Reporting Directive (CSRD) is to ensure that companies report on their impact, risks, and opportunities in a wide range of sustainability areas, not only focusing on the environment. 

The CSRD adopts a “double materiality” approach, which means that companies are expected to disclose information not only covering the impact that they have on world but also how sustainability concerns affect their business performance and value creation.

This twofold approach aims to provide a comprehensive picture of the risks and opportunities that companies face in relation to sustainability, as well as their contributions to the achievement of the European Green Deal and the United Nations Sustainable Development Goals. The CSRD covers environmental, social, and governance (ESG) aspects, such as climate change, biodiversity, human rights, diversity, health and safety, anticorruption, and taxation. The CSRD also requires companies to report on their strategy, targets, policies, governance, and due diligence processes related to these aspects as well as the outcomes and impacts of their actions.

By reporting on these aspects, companies can demonstrate their accountability and transparency to their stakeholders, such as investors, customers, employees, regulators, and civil society. Moreover, by collecting and analyzing data on their ESG performance, companies can identify gaps, strengths, and areas for improvement, and align their business models and practices with the principles of sustainability.



Myth 2: Sustainability reporting is cheap and easy.

Unfortunately, as of this writing, sustainability reporting is considerably expensive. According to a survey by the Sustainability Institute’s Environmental Resources Management (ERM), institutional investors and corporate issuers in the US spend a considerable amount of money on climate-related disclosure activities. The tables below paint a picture of their biggest expenses.

Cost Category Average Annual Cost 
(for those reporting spend on the category)
Greenhouse gas (GHG) analysis and/or disclosures US$237,000
Climate scenario analysis and/or disclosures US$154,000
Internal climate risk management controls US$148,000

Table 1. Largest climate-related sustainability reporting costs for corporate issuers

 

Cost Category Average Annual Cost 
(for those reporting spend on the category)
External ESG ratings, data providers, and consultants US$487,000
In-house, outside counsel, and proxy solicitor analysis of shareholder voting for ballot items related to gathering climate risk management information US$405,000
Internal climate-related investment analysis US$357,000

Table 2. Largest climate-related sustainability reporting costs for institutional investors

Tables 1 and 2 do not cover the remaining ESG requirements, which means that expenses would be even greater once those are factored in. However, just stopping at compliance-related expenses is shortsighted. Consumers have become more conscious of sustainability issues. In fact, nearly 76% of them claimed they would stop buying from companies they perceive as damaging the planet, unfair to their employees, or harmful to local communities.

However, it’s worth mentioning that sustainability reporting provides companies with tools for identifying and correcting areas of inefficiency and realizing savings. To illustrate, pinpointing areas where GHG emissions in transportation systems are highest can consequently inform the optimization strategies for those systems. Moreover, the reporting tools can draw insights on where growth opportunities lie. For example, the automated monitoring of resource consumption and reuse that Lingaro implements for its Raw Materials and Water Consumption Dashboard helps manufacturers execute what-if scenario analyses for measuring the potential business and environmental impacts of sustainability initiatives, such as replacing plastic bottles with glass.

Emissions Dashboard 1

Figure 1. A dashboard that includes a diagram that drills down into the highest source of CO2 emissions

 

Myth 3: Long, complex reports are better, especially for compliance.

Lengthy and complex reports tend to contain information that is irrelevant for their intended users. To illustrate, companies publish lengthy descriptions of initiatives that are not strictly connected with ESG but are more for corporate social responsibility (CSR). The pseudo-sustainability report then becomes a marketing or PR tool to promote those initiatives. Moreover, the reports are filled with pictures that might make the relevant information difficult to find.

To create more useful and better reports, companies should concentrate on having material information presented in a way that allows users to easily find the information they are looking for. Further, whenever possible, the information must be provided with additional context. For example, the latest performance ratings of diversity, equality, and inclusion (DEI) initiatives will be more meaningful if they are delivered together with information covering other time periods. 

Properly performed double materiality assessment is key for high-quality sustainability reporting. It makes the report focus on:

•    Impact materiality: How business-related activities affect sustainable development
•    Financial materiality: How sustainable development efforts affect the financial performance and value of the company

Tackling these provides valuable insights into how the company’s profit and sustainability motives antagonize and support one another.


Myth 4: Annual sustainability reports are enough.

Annual external reporting is now an expectation. However, it is not sufficient for internal purposes, especially since the CSRD and the European Sustainability Reporting Standards (ESRS) require companies to set short-, medium-, and long-term targets. Internal reporting is a valuable tool for tracking progress and providing crucial information to different stakeholders. Through monthly and quarterly reporting, stakeholders can see if sustainability initiatives are on the right track or if corrective action must be taken.


Myth 5: All sustainability reporting software is effective.

Sustainability reporting is a complex task. It requires information to be gathered from various sources across the whole organization. Most software available on the market tackle specific ESG topics, such as the calculation of GHG emissions. This, however, only covers a limited share of the information that has to be reported.

To achieve the maximum level of efficiency, it is advisable for the enterprise to create a solution that enables it to integrate all data sources, ensure high-quality data, and make it auditable for the purposes of upcoming third-party attestations. If the enterprise lacks the resources to build this solution, then it must turn to a data services provider like Lingaro. As an end-to-end sustainability partner, Lingaro can create a tailored solution comprising an integrated software system that fully addresses the needs of the business.

Case Study: CO2e Emissions Dashboard

Learn how Lingaro helped a global CPG manufacturer automate the particular ways that it monitors and reuses its resources through advanced analytics.

Learn more

 

Myth 6: Collecting data for the report is simple and easy.

For each KPI and ESG metric that the firm set for themselves, they must identify data sources and come up with ways to retrieve and manage the data. More often than not, since the data might also come from external parties like materials suppliers, the data will need to be transformed into a standardized format. Last but not least, the firm must apply data governance frameworks to keep data private, secure, and compliant with applicable rules.

Given these challenges and the time needed, it pays to automate sustainability data collection and data enrichment so that firms can focus on analyzing the data and deriving insights from it. 

Sustainability Analytics Dashboard with Features
Figure 2. A diagram showcasing the many useful features of Lingaro’s sustainability analytics dashboard

 

Myth 7: Sustainability reporting is just a passing trend.

Far from being a passing trend, sustainability reporting has become an integral part of business operations — and sector-agnostic European Sustainability Reporting Standards are just the beginning. In the upcoming years, we expect further obligations to be introduced. 

The European Financial Reporting Advisory Group (EFRAG) is currently working to finalize the development of eight sector-specific standards. Although the sector-specific standards were delayed by two years till 2026, it is worth noting that it only happened to reduce the reporting burden for companies for now. Moreover, EFRAG has published two exposure drafts for standards dedicated to small- and medium-sized enterprises (SMEs). One draft is for the standards for compulsory reporting by listed SMEs, while the other is for the standards for voluntary reporting by unlisted SMEs. EFRAG recognizes that although SMEs don’t have the same resources or capabilities to comply with the requirements as large enterprises do, they must still publish relevant information. Those SME standards are now subject to public consultation.

As a data, analytics, and AI company, we have both the technological excellence and the business expertise employed in sustainability initiatives and the reporting that comes with these. For sustainability reporting in particular, we apply our triple bottom line accounting framework to help firms balance financial gains with social responsibility and environmental stewardship. Moreover, our GRI-certified experts are always on top of the regulation landscape, so enterprises will always be compliant with all the latest applicable rules and reporting standards.

Further Reading:

Learn how data and analytics can help companies, waste management organizations, and government agencies work together — despite having different data — to recycle plastic by downloading our white paper, “Breaking Down Plastic Recycling With Data and Analytics.”

Breaking Down Plastic Recycling With Data and Analytics

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