1.2 Best Practice: A Five-Step Guide
In addition to the ten recommendations for the path to sustainability, companies can also take five practical steps in their sustainability reporting. These are intended to help them develop a unified, integrated approach to reporting with the goal of effective capital market communication. The first three steps relate to the content of the disclosures (what to report), while the last two focus on the principles of reporting (how to report).
1. Concentrate on a handful of key indicators and explain the connection between non-financial and financial data
In their reporting, companies should focus on a limited number of KPIs and measures that are relevant to the management and all stakeholders, linked to the corporate strategy, and illustrate the impact on the financial results. They should also be underpinned by a clear description. Consideration and/or prioritization of the most important KPIs can highlight the company’s unique features. The more that companies emphasize the connection between non-financial and financial data and the impact on company value, the more relevant ESG factors will be for investors.
2. Focus on an “opportunities and risk” approach
When analyzing companies, investors consider not only key financial figures and economic advantages but also the quality of the ESG-related content. For company valuation and investor confidence, it is important to understand opportunities and risks in connection with ESG topics and communicate them transparently in order to strengthen investors’ trust. Companies should therefore provide reliable information about key components of their value creation (financial and non-financial) and their integration into the strategy, company management, and operations. Companies should also communicate sustainable products and innovative solutions in order to set themselves apart and remain competitive.
3. Favor quantitative data
When drawing up reports, it is important to meet investors’ expectations with regard to the clarity and structure of information. The objective is to illustrate the financial value of the sustainability strategy and evaluate the risks. It is therefore important to define specific, measurable sustainability goals and link them to financial performance. An outlook on future challenges, opportunities, and achievements also plays a key role in sustainability reporting. In this context, companies should try to evaluate the impact that their industry and the market trends will have on their future sustainability performance. ESG ratings are also relevant to companies and investors.
4. Refer to international and national standards
There are many sustainability reporting standards in the market. To facilitate valuation and comparability for investors, it makes sense to use internationally or nationally recognized standards as a basis. Internationally recognized standards, such as those of the Global Reporting Initiative (GRI) or the International Sustainability Standards Board (ISSB), serve as a guide for companies, enabling them to identify and prioritize key topics and relevant KPIs.
5. Pay attention to presentation
Rather than publishing a separate sustainability report, companies should provide a coherent representation of financial and non-financial information, as this offers investors and analysts a comprehensive source of information. ESG data should be presented in a compact and concise form, ideally together with the financial report. A consistent and clear reporting methodology is crucial. Changes to the selection or development of KPIs should be communicated in an open, easily understandable way.