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 holistic approach to reporting for 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. Consideration and/or prioritization of the most important KPIs can highlight the company’s unique features. The more companies emphasize on the connection between non-financial and financial data and by doing so showing the impact on company value, the more relevant ESG factors will be for investors. A clear description of the KPIs, measures, and the applied methodology is essential.
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 in the long run.
3. Focus on 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
While there continues to be a wide range of standards for sustainability reporting, companies in the EU are required to report in accordance with the European Sustainability Reporting Standards (ESRS). In Switzerland, the Code of Obligations mandates reporting for certain companies in line with internationally recognised frameworks. For international comparability, it remains useful to additionally draw on globally recognised standards such as the Global Reporting Initiative (GRI) or the International Sustainability Standards Board (ISSB). These also serve as guidance for companies in identifying and prioritising material topics and relevant KPIs.
5. Pay attention to presentation
Companies should provide a coherent representation of financial and non-financial information to offer investors a comprehensive source of information for the valuation of the company and to meet current regulations. ESG data should be presented in a compact and concise form. A consistent and clear reporting methodology is crucial. Changes to the selection or development of KPIs must be communicated in an open, easily understandable way, as required by reporting standards and regulations.