Green Horizons

Sustainability reporting is becoming more than a fleeting fad, rather, businesses investing time and effort in enhanced sustainability reporting processes now will be well-placed to succeed in the long term. But what exactly is sustainability reporting? Why is it important? And how can it strengthen business strategy and drive growth? 

The Rise of Sustainability Reporting:

ESG factors have taken center stage for businesses globally. The 2022 KPMG Survey of Sustainability Reporting¹ highlighted that 96% of the world's leading 250 companies actively reporting on sustainability to a varying degree.

Sustainability is no longer siloed in the corporate structure and now permeates multiple functions within companies. Effective reporting provides an insightful narrative of a company's economic, environmental, and social impact. It also presents the organization’s values, governance model and demonstrates the link between its strategy and its commitment to a sustainable global economy.
 

Recent Developments:

The sustainability reporting landscape has witnessed pivotal advances, with notable developments such as Europe’s Corporate Sustainability Reporting Directive (CSRD), and the US Securities and Exchange Commission's (SEC) rule on climate-related disclosures. These milestones underscore the growing importance of ESG in regulatory frameworks. More prominently, the inaugural disclosure standards published by the International Sustainability Standards Board (ISSB) marks a global standard that has been established by International Financial Reporting Standards (IFRS) and endorsed by multiple jurisdictions – namely Australia, Bangladesh, Brazil, Canada, Costa Rica, Nigeria, Turkey and the UK, among others².

Climate risk and greenhouse gas (GHG) emissions are at the forefront of ESG themes, with an increasing expectation for companies to measure and report on their Scope 3 emissions (i.e. those they are indirectly responsible for up and down their value chain). In addition, as was reiterated during last year’s COP28, there is a growing recognition of the importance of biodiversity³ and the risks associated with its loss, which is reflected in the disclosure requirements of the Taskforce on Nature-Related Financial Disclosure (TNFD).

With deadlines approaching for the 2030 Agenda for Sustainable Development – in which the 17 Sustainable Development Goals (SDGs) were established with the aim of their achievement by 2030 – many companies also continue to align reporting with these objectives – particularly focusing on decent work, responsible consumption, and climate action⁴.

Benefits of Sustainability Reporting:

Sustainability reporting could be considered a strategic imperative. Through a robust reporting system, organizations can enable the identification of potential advantages within their operations.

Risk Management

Enhanced reporting provides a structured framework for identifying, assessing, and managing risks. By thoroughly evaluating ESG factors, companies can proactively address potential challenges, mitigating the negative consequences and safeguarding from unforeseen setbacks.

Financial Performance

A recent survey found 43% of business leaders at large firms reported that ESG is improving financial performance⁵, underscoring a correlation between "doing well” and “doing good”. Markets, in turn, seem to reward such enterprises, with investors showing a growing inclination towards companies that are transparent and have strong sustainability reporting processes⁶.

Stakeholder Relationship Enhancement

Through sustainability reporting, companies can systematically incorporate the concerns and expectations of various stakeholders into their decision-making processes. This helps to foster a sense of transparency and build stronger relationships with customers, employees and communities.

By showcasing a commitment to ESG through sustainability reporting, organizations may also position themselves as employers of choice for top talent. This can lead to a more engaged and motivated workforce, driving innovation and long-term success.

Challenges of Sustainability Reporting:

Despite positive momentum, challenges persist. The multitude of global reporting standards and frameworks, creating a potential minefield for businesses and adds a layer of complexity for stakeholders to compare and benchmark companies effectively.

Reporting also demands an investment of time and resources, posing challenges for smaller companies with limited capacities. This can divert attention from other core business operations.

Despite these challenges, solutions continue to be developed. Organizations are working to create a global baseline for reporting and guidance tailored to specific sectors. Companies are also increasingly deploying data management platforms to streamline data collection, analysis, and reporting.
 

How to Prepare for Sustainability Reporting:

Companies should prepare for an era of tighter reporting standards, oversight, and scrutiny, demanding key considerations:

• Management engagement is critical to ensure that the sustainability strategy integrates with corporate strategy, ensuring pathways to deliver commitments are built into a credible transition plan.
• Involving the Board of Directors. Europe’s CSRD, for example, imposes duties on Board Members. Boards often lack sustainability expertise and could benefit from general awareness building and specific trainings.
• Prepare for transition from voluntary to mandatory disclosures. As of today, most corporate sustainability reports would not meet the regulations being rolled out around the world, especially the need for assurance.
• Focus on materiality. The same rigor should be applied to sustainability reporting as to their financial reporting, focusing on areas of primary concern to stakeholders.

Sustainability reporting is becoming a critical tool for companies to showcase their commitment to sustainability issues and is illustrated by the developments in reporting standards and regulations. Ultimately, integrating these considerations into corporate decision-making can position companies for long-term success and contribute to a sustainable global economy.

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1. KPMG (2022) Big Shifts, Small Steps.
2. S&P Global (2024). Where does the world stand on ISSB adoption? 
3. Convention of Biological Diversity (2023). UNFCCC COP28 UAE and the importance of biodiversity
4. KPMG (2022) Big Shifts, Small Steps. 
5. KPMG (2023) KPMG U.S. ESG and Financial Value Survey. 
6. McKinsey & Company. 

The views and opinions expressed herein are those of the respondents/authors and do not necessarily represent the views and opinions of KPMG LLP, Cayman Islands.

Jonny Gibson 
Senior Associate, ESG,
KPMG in the Cayman Islands

Get in touch with Jonny here. 

jonnygibson@kpmg.ky 

+1 345 914 4421