Through my work as head of KPMG's ESG Impact Hub and as a member of FSR's Sustainability Committee, USB, I have the pleasure of following Danish companies' ESG reporting at first hand. It is therefore clear to me that the many great efforts and reports have been on an interesting journey and that this journey will continue for many years to come.
The development differs from company to company. While for some it will be small adjustments from year to year, others take big leaps, so they are able to join the reporting wave. Sustainability efforts will be (and already are for some) essential in retaining and attracting clients, employees, investors and partners (you just continue the list).
It is only natural that the reporting landscape evolves - the field is maturing, and regulation is increasingly shaping the format of reporting.
Nevertheless, it is worth noting that there has been a fundamental change, both in reports’ content and in the way they are read.
Three stages of ESG reporting
To simplify we can describe the development in three stages:
The first was the marketing stage. This stage didn’t care much about the actual content of the reports, and many worked in an unstructured way with SDGs, storytelling on insignificant efforts and greenwashing (as it was probably not called then).
A phase that was perhaps hard to get around, but still an annoying period, both because it did not create material value and also because most of those who jumped on this wave would have to do it all over again at a later stage. Marketing is now thankfully out of the specific efforts and back to the communication and presentation of the reports.
The second stage is the compliance stage which includes EU taxonomy, SFDR, CSRD and so on. The list is long and many would say that this phase never ends. There are probably many truths to that. Nevertheless, I think we are more on safe ground when it comes to the purely regulatory side of things. We have been through this before, and years of assurance on the reports have given the accounting firms enormous ballast. This means that we know how to receive new regulation and we have tried to implement similar measures before. That doesn't mean it's easy; for many - including ourselves – regulation such as CSRD means a significant expansion of the work we have to do on ESG reporting.
But our experience means that we can now, to a greater extent than before, help smaller and medium-sized companies adapt their reporting to the new rules. We have also educated our employees about ESG and reporting, and they can therefore spread their knowledge to other companies - just as companies are good at sharing their knowledge. This means that many companies are really moving forward and working actively with the agenda, in line with those companies that, because of the taxonomy regulation, have had reporting on the agenda for many years.
The third stage can be referred to as the Impact stage. Reports have reached a level of maturity where compliance and content are clear, and the format is developed to such an extent that it for some reports is almost impossible to put a finger on the work.
Therefore, the next natural point will be to focus on real results. What material difference do you make, what has gone well and what has gone less well. The balanced presentation of the company, with an honest presentation of value creation, is the next level. You don't stand out in the crowd because of compliance or storytelling.
Instead, you stand out by being honest and by showing that you actually make a difference - even if it is difficult. Maybe especially when it's difficult. This is probably only possible when a bridge is built between the sustainability function and the other functions, both at staff level and in the business areas.
This trend has a spill-over effect, and companies that want to start their reporting journey, or need to update their current one, will naturally adapt so their reports also become more balanced and focused on impact. A trickle-down effect that will be amplified as more and more companies start their reporting.
And of course, the reports have to look good, and be properly worded and all that. But that's not the main purpose of them - just as the purpose is not that they comply with regulation. The purpose of the reports is to show that something is happening and that we are making a difference and dare to talk about what is difficult. That's why the rules are there, so we can work actively to find solutions together.
Written by Esben Juul Hansen