The question is who, according to you, should be reading your sustainability disclosures rather than who is reading them. Is your sustainability communication reaching the right audience?
I once asked a Chief Sustainability Officer (CSO), the question – ‘who needs to read the sustainability disclosures’ that he and his team were so fastidiously compiling. He started thinking and answered – “I am sure the investors are reading, clients are reading and definitely our employees”. I followed the answer and asked him how is he sure of it? Then he changed his answer to – “I expect the investors to read, and I hope the clients read it, but I am sure the employees are reading”. I asked him again as to what percentage of employees he thinks are reading the sustainability disclosures, to which he said he expects that almost every employee is aware that the company has a sustainability report; at least 50% would have seen at least the cover and maybe 20% would have read some parts. We decided to conduct a survey to validate his expectations. It turned out that less than 32% of employees knew there was a sustainability report for the company, less than 8% knew what the cover was, and less than 1% had seen the inside of the report.
To be fair, I do not think this is an isolated case; the numbers will be similar if I repeat this for other organizations. For many CSOs, their role is to ensure these disclosures come out on time, with little interest in the outcome. But it is time to rethink this approach. Communication is only complete when the expected receiver gets what is communicated without distortion; otherwise — it is only an announcement.
It is possible for some companies who see disclosures as compliance, for them the strategy is only to announce this, and this article is not meant for them. This is intended for companies and CSOs interested in effectively communicating their sustainability efforts, actions, initiatives, goals, and performance.
Some years back, the Corporate Register used to publish alongside its annual awards, a section on who reads sustainability reports. Academia and Media were the top readers, followed by potential employees. But in the last 4-5 years, ESG analysts will be one of the biggest readers of these reports. In India, academic institutes and the media are the biggest users of sustainability disclosures, especially after the mandate for Business Responsibility and Sustainability Reporting (BRSR). I feel potential employees in India, more than their affinity to working with a company with better sustainable performance, they read reports to prepare for interviews.
As we are entering the reporting season, I think it will be relevant for me to dwell further on this topic. In the last decade and a half, I have consulted more than 200 companies in the sustainability reporting space, and I ask two questions to companies starting their journey on sustainability disclosures.
- Why do you want to report?
- Who is your prime audience?
It has been very rare that I have received a straight answer to these questions. With the growing regulatory sustainability disclosure requirement, the first question is somewhat answered for companies starting the journey to say that it is now a regulatory requirement. However, the second question needs a closer look because once you put out the disclosure, it is available to many stakeholders. But the critical question is whether you want this to reach the right audience and, if so, how to ensure the same.
I am purposefully using the word sustainability disclosures instead of sustainability reporting because, with growing regulations on sustainability disclosures, there is a tendency for companies not to have separate reporting, which I am not in favor of. A good sustainability report is not just reporting on metrics as required in regulatory disclosures but also a way to explain the context of that data or information and its trend, and my recommendation is to have a separate report in this context. And this should not be limited to just graphs, boxes and explanation. Rather imagination would be a key here.
Today’s trend is “One Report,” which was postulated by Prof Robert Eccles and further elaborated in the Integrated Reporting framework, later merged into Value Reporting, which the IFRS foundation and ISSB took responsibility for recently. While I agree that sustainability needs to be integrated into everything a company does and the annual report should be an integrated report, I still believe that just “One Report” is ineffective communication. While the Integrated Reporting framework has clearly stated that it has been developed keeping in mind the key stakeholders as providers of financial capital, the ISSB, through their single materiality, has also made it clear that their audience is also the investors. So, will “One Report” be a good communication strategy for other stakeholders? No, because it is not designed for them. Does that mean we should have separate reports for every stakeholder? Again, it’s a big NO.
It is essential to have a communication strategy (not separate reports) for your key stakeholders, and this is where we go back to the basic principles of sustainability reporting.
The stakeholder engagement and materiality principle are fundamental in devising the sustainability communications strategy. However, do not mix materiality across multiple stakeholders, do not average out materiality across multiple stakeholders; keep the material aspects separate for key stakeholders. So, as a first step, select a maximum of 3-4 key stakeholders and pick the material aspects. Identify the right metrics that will cover those material aspects in 360 Degrees. This is key because limited disclosures suiting the organizational interest will harbor close to greenwashing, and this is where the context and completeness principle comes in. The next step is to decide the frequency or the time period of communication. The next stage is the mode and channel of communication. The mode of communication, the channel used, and the frequency of communication for an ESG analyst will be different from that for employees or clients. We also need to close the cycle of communication with a feedback loop.
Sustainability communication is a yearlong process and not a one-time activity. We must also remember that Sustainability disclosure does not mean action for sustainability. Still, it can definitely be the start or even a catalyst for action and performance if applied with the right communication strategy.
