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Using sustainability reporting to drive behavioral change

It’s easy to fixate on the mechanics of sustainability reporting – getting lost in the weeds of detailed metrics. This focus is both understandable and valid. But sustainability reporting is not, and never should be, viewed as an end in itself. Rather, it is a means to overcome the disconnect between ambition and action.

Sustainability reporting serves a variety of purposes. How it is used depends largely on the priorities and lens of the stakeholder. For investors, sustainability information can offer insight into hidden material risks and corporate governance. For policy makers and regulators, disclosure can be leveraged to encourage behavior change toward stated policy goals. For consumers, employees, NGOs and other stakeholders, transparency provides a lever to improving ethical, social and environmental performance.

Deloitte conducted interviews with leaders from around the world, gathering perspectives on the challenges in delivering ESG information and the actions required to catalyze behavioral and systemic change. The perspectives vary, mimicking the lack of alignment in the ESG reporting landscape and the diverse priorities of stakeholder groups.

Deloitte consolidated the feedback from these interviews identifying six conditions needed to shift from the current position of inconsistent and unreliable data to a point where sustainable decision-making really does bring about demonstrable actions in the near term. This paper summarizes the views of the interviewees.

Six Conditions

In an attempt to harmonize these views and move from fatigue to action, Deloitte has taken the composite of what we learned and developed a blueprint for change. Conversations identified six recurring themes or conditions that need to be in place to drive from the current position of incomparable and unreliable data to one where ESG reporting really does catalyse demonstrable actions at pace.

Global standards provide a common language for sustainability reporting to drive transparency and comparability of decision-useful information. Differing views on the nature of this common language have led to fragmentation, complexity, and cost.

Companies risk overwhelming users with too much data or too little information. While companies should be selective in what they report, cherry-picking disclosures and failing to give a fair and balanced view of a company’s sustainability is likely contributing to perceptions of greenwashing. A lack of consistency in data points makes it harder for investors and other users of information to make comparisons between companies.

Sustainability is not fully understood across all levels of company management, including within the board and the C-suite. Sustainability reporting cannot be authentic, and address the challenge of greenwashing, until sustainability is integrated into decision-making and operations across the organization. Only approximately half (52%) of Audit committee respondents to Deloitte Global’s 2021 survey felt that their company had the information, capabilities, and mandate to fulfill their responsibilities in respect to climate change.

Effective regulation and enforcement need to accompany the drive to comparable, consistent, reliable, and decision-useful sustainability information. Market forces alone cannot deliver the scale and magnitude of the change that is needed to move to a sustainable future; public and private sector collaboration is key to achieving a more sustainable future. Policy interventions and legislative changes in the form of incentives and penalties should be employed to accelerate this change.

Each stakeholder (investors, policymakers, customers, employees, communities, etc.) has a distinct role to play in holding companies to account. However, many do not fully understand the complexities of the sustainability reporting landscape or are not equipped with the knowledge, skills, or information to effectively engage with companies and hold them accountable. Annual reports and financial statements which contain vast amounts of data on corporate performance are often too long and complex to meet stakeholder needs.

Transformation at pace will require strategic efforts to drive coordinated implementation between sectors and industries, across peers, and throughout supply chains. A holistic system-level approach can unlock critical opportunities for collaboration in the transition to a sustainable economy. Lack of synchronization to date has created obstacles and complexities, disincentivized behavior change and runs the risk of leaving small to medium-sized enterprises behind.