In today’s era, characterized by a growing environmental and social awareness, sustainability has emerged as a central pillar in organizations. In this context, sustainability reports have become indispensable tools for companies wishing to communicate not only their economic impact but also their commitment to responsible and ethical business practices. These reports serve as a communication bridge between the company and its stakeholders, including investors, customers, employees, partners, and the community in general, providing a transparent view of the company’s actions regarding its environmental, social, and governance responsibilities.

What is a Sustainability Report?

A sustainability report is a corporate document that details a company’s environmental, social, governance, and economic performance. This type of report is essential for communicating to stakeholders (including shareholders, customers, employees, suppliers, and the community in general) the company’s practices and results regarding sustainability. Sustainability reports are often governed by international standards and guidelines, which provide a framework for consistent and comparable reporting.

The structure of a sustainability report can vary, but it generally includes an introduction to the organization and its activities, an analysis of the impact of these activities on the environment and society, an overview of the company’s sustainability strategies with quantitative and qualitative performance data, and future objectives. The report documents the efforts and challenges in sustainability matters and highlights the company’s commitment to transparency and corporate responsibility.

What is the Importance of Sustainability Reports for Organizations?

Sustainability reports are crucial for organizations for several reasons nowadays. Firstly, they allow companies to assess their performance in relation to sustainability goals, identify areas for improvement, and develop strategies to mitigate risks and seize opportunities. A good sustainability strategy can significantly impact an organization’s medium to long-term results.

Additionally, these reports help build trust with stakeholders by demonstrating a commitment to ethical management, the environment, and society. This transparency can strengthen the company’s reputation and customer loyalty, and contribute to attracting and retaining talent. In an era where consumers and employees are increasingly aware and demanding of sustainable corporate practices, this is essential.

Economically, the reports can influence investment decisions by providing crucial data for investors seeking to allocate capital to companies demonstrating ESG (Environmental, Social, Governance) responsibility. Robust and transparent reports can attract sustainable investments, which are increasingly relevant in the global financial market.

Thus, sustainability reports are not just informative documents, but strategic tools for conscious business management adapted to current challenges.

How to Prepare a Sustainability Report

Preparing a sustainability report involves several steps, from setting up a team to validating and disseminating the report. Each phase is essential to ensure that the report is comprehensive, accurate, and useful for both the organization and its stakeholders. The preparation of the sustainability report is usually part of a broader project to develop the organization’s sustainability strategy. In this context, we will focus exclusively on the steps related to the development of the report itself.

Defining the Task Force and Report Structure

The first step in preparing a sustainability report is defining a task force, or work team, responsible for leading and coordinating the entire report development process. This team should include members from different departments, such as finance, operations, human resources, and marketing, to ensure a comprehensive view.

At the start of the process, it’s also necessary to establish the structure of the report. This phase involves deciding which topics to include, how the chapters will be organized, and which reporting standards or guidelines to follow, such as the Global Reporting Initiative (GRI), Sustainability Accounting Standards Board (SASB), or European Sustainability Reporting Standards (ESRS). The structure should reflect the company’s sustainability priorities and stakeholder expectations.

Data Collection Planning

Planning data collection is one of the most technical phases in preparing a sustainability report. This step involves defining what data is needed, from what sources it will be obtained, and how it will be collected. Data integrity is crucial, so methods for verification and validation must be established, always considering the reporting period. The selected standard or guideline will also influence the data to be collected and how it is presented.

An important aspect of data collection planning is measuring greenhouse gas (GHG) emissions, which is crucial for calculating the organization’s carbon footprint. This process involves identifying all relevant emission sources within the company and for each source, establishing a methodology to quantify emissions accurately, often using standardized emission factors and company-specific activity data. Accuracy in this calculation impacts the credibility of the report and the effectiveness of the company’s carbon mitigation strategies. Therefore, this aspect of data collection requires detailed attention to ensure that all information is captured efficiently and correctly.

Developing Report Content

Developing the report’s content involves compiling and analyzing the collected data to create a coherent and engaging narrative. This content should be based on prior analysis, such as the materiality analysis (which identifies the most significant sustainability aspects for the company and its stakeholders) and the sustainability roadmap. Additionally, it should include the evolution of key performance indicators and any additional information gathered. The content should be clear, honest, and reflective, providing a transparent view of the company’s sustainability activities.

Internal Report Validation and Dissemination Planning

Before publishing the report, it is crucial that it goes through an internal validation process. This step involves reviewing the report to ensure all information is correct and that the report as a whole adequately reflects the company’s sustainability stance. After validation, the dissemination should be planned by deciding on communication channels, target audiences, and key messages.

External Validation and Notification of Reference Frameworks

External validation, conducted by independent auditors or sustainability consultants, adds additional credibility to the report. This step may include formal verification of compliance with external standards and ensuring that sustainability statements are fair and based on evidence.

After internal validation, the company can also notify the relevant reference frameworks, informing them of the report’s publication and ensuring it is properly recognized and registered on these platforms.

Legislation and Regulations on Sustainability Reports

The growing importance of sustainability reports is accompanied by an increase in regulations and legislation guiding how organizations should report their sustainable practices. These regulations are crucial for standardizing reports, ensuring transparency, and driving more meaningful sustainable strategies and activities.

Global Sustainability Standards Overview

The global sustainability standards landscape is characterized by a complex network of regulations and guidelines aimed at guiding companies in disclosing their environmental, social, and governance (ESG) practices and impacts. Among the most influential guidelines are those from the Global Reporting Initiative (GRI), the Sustainability Accounting Standards Board (SASB), and the Task Force on Climate-related Financial Disclosures (TCFD), which provide internationally recognized standards.

Particularly significant in the European Union is the Corporate Sustainability Reporting Directive (CSRD), which significantly expands the scope of the previous Non-Financial Reporting Directive (NFRD). The CSRD requires companies to report on a wider range of ESG topics and have this information independently verified. This directive is a clear example of the global movement towards greater transparency and rigor in sustainability reporting, pressuring companies to not only evaluate but also comprehensively disclose the risks and opportunities related to sustainability.

A crucial component of the CSRD is the European Sustainability Reporting Standards (ESRS), which detail how companies should report their sustainability information. The ESRS provides a specific set of standards ensuring that disclosures meet the CSRD’s expectations regarding quality, comparability, and relevance of information. These standards align with international best practices and are designed to harmonize sustainability reporting across Europe.

These developments reflect a growing trend towards stricter regulation, pushing companies to adopt more sustainable and transparent practices, and indicate a move towards global standardization of expectations and requirements around sustainability reporting. The CSRD marks a significant step towards standardization in Europe, setting a new benchmark that could influence standards in other regions of the world.

Future Trends in Regulations

Future trends in sustainability regulations indicate a continuous strengthening of the requirements on how companies should report their activities and environmental, social, and governance impacts. The evolution of these regulations points to an increasing integration of sustainability with financial reporting practices, with a growing focus on corporate responsibility and transparency.

The Corporate Sustainability Reporting Directive (CSRD) of the European Union exemplifies this evolution. This directive extends the requirements of the NFRD, demanding that a broader range of companies provide detailed reports on sustainability issues. Additionally, the CSRD imposes the need for these reports to be independently verified, ensuring greater reliability of the disclosed information. This reflects a global trend of demanding greater accuracy and verifiability in reported sustainability information.

Other regions of the world are expected to follow the European Union’s example by adopting stricter regulations requiring greater disclosure of climate-related risks and environmental impact. Global alignment of standards also seems to be a growing trend, aiming to facilitate comparisons between companies and sectors, thus improving investor and consumer confidence in reported sustainability practice.

Furthermore, integrating ESG criteria into conventional financial reports is becoming a more common practice, driven by both regulatory pressures and market forces. Such changes indicate a future with sustainability at the core of business operations and strategies.

Common Challenges in Preparing Sustainability Reports

Preparing effective and accurate sustainability reports is a laborious task that involves multiple challenges. From data collection to alignment with corporate strategy, each step presents specific obstacles that companies must overcome to ensure the quality and effectiveness of their reports.

Complexity of Data Collection

One of the biggest challenges in preparing sustainability reports is the complexity associated with data collection. Companies need to gather information from various sources, often dispersed across different departments or even geographies. Data quality and integrity are essential, and ensuring their accuracy can be difficult, especially when measuring indirect impacts or non-financial data, such as those related to environmental or social impact. Additionally, the lack of adequate IT systems to integrate and process this information can further complicate this process.

It is crucial not only to follow a standardized process but also to optimize the measurement process so that in subsequent years, data collection is simpler and with less associated waste.

Aligning Sustainability with Business Strategies

Another challenge is aligning sustainability practices with the company’s business strategies. For a sustainability report to be truly effective, sustainability initiatives must be integrated with the company’s core goals and objectives. This requires not only a commitment from leadership, but also the ability to communicate how sustainability contributes to the company’s economic and operational success.

There can often be a gap between sustainability goals and business practices that need to be managed to ensure cohesion and consistency across the organization. The goal is to ensure that the organization has more than a sustainability strategy—it has a sustainable business strategy.

The Future of Sustainability Reporting

Sustainability reporting is evolving rapidly in response to the growing demand for corporate transparency and accountability. As ESG issues gain more relevance on global agendas, the future of sustainability reporting promises to be even more integral, innovative, and influential in business practices. Here are some trends that may shape the future of reporting:

• Complete Integration with Financial Reports: The trend of integrating sustainability reports with financial reports is strengthening. In the future, sustainability reports are expected to be not just complements to financial reports but an integral part of them, reflecting the understanding that sustainability directly influences financial performance and vice versa.
• Use of Technology and Real-Time Data: Technology will play a crucial role in transforming sustainability reporting. Using various technologies can enable real-time data collection and analysis, improving the accuracy and transparency of reports. This improvement will also help companies monitor their performance continuously, rather than only at periodic intervals.
• Stricter Standards and Regulations: As the importance of ESG factors grows, so do the expectations for stricter regulations around sustainability reporting. More governments and regulatory entities are expected to introduce stricter laws to ensure that companies report their impacts more thoroughly and in a standardized way. The CSRD in the European Union is just one example of how regulations are evolving.
• Focus on Real Impact: There will be increasing pressure for reports to move from merely listing sustainable practices to demonstrating the real impact of these practices. Companies will be encouraged to report not only on what they are doing in terms of sustainability but also on the actual long-term impact of these actions on the environment and society.
• Greater Stakeholder Engagement: The future of sustainability reporting will also see more active stakeholder engagement in the reporting process. This may include more frequent and in-depth consultations with stakeholders to identify material issues and ensure that the reports meet their needs and expectations.
• Innovative Reporting Formats: With the advancement of digital technologies, the formats of sustainability reports may become more interactive and accessible. Digital reports and interactive dashboards will allow stakeholders of all kinds to access and analyze information more efficiently.

These trends point to a future where sustainability reports will be more dynamic, interactive, and integrated with companies’ daily operations, playing a crucial role in guiding business strategies towards true and impactful sustainability.

Still have some questions about sustainability reports?

What are the main frameworks used in sustainability reporting?

Sustainability reports are typically structured based on various internationally recognized frameworks that help organizations present their information systematically and comparably. Some of the most widely used include:

• Global Reporting Initiative (GRI)
• Sustainability Accounting Standards Board (SASB)
• Task Force on Climate-related Financial Disclosures (TCFD)
• European Sustainability Reporting Standards (ESRS)

How can sustainability reports influence investment decisions?

Sustainability reports can significantly impact investment decisions. Investors and funds focused on ESG criteria use these reports to assess how well a company is managing sustainability-related risks and leveraging corresponding opportunities. Robust and transparent reports can attract investors by demonstrating a commitment to sustainable practices and corporate responsibility. Additionally, many investors view strong ESG performance as indicative of potentially more stable long-term returns.

How does current legislation influence the preparation and publication of sustainability reports in the European Union?

Current legislation significantly influences the preparation and publication of sustainability reports in the European Union. The Corporate Sustainability Reporting Directive (CSRD) has significantly expanded the scope of the previous Non-Financial Reporting Directive (NFRD). Key impacts of the CSRD on sustainability reporting include:

• Expanded scope: The CSRD expands the number of companies required to provide detailed sustainability reports, including all large companies and all companies listed on regulated markets (except micro-enterprises).
• More detailed reporting requirements: Under the CSRD, companies must report not only on sustainability-related policies, results, and risks but also on the impact of their activities on society and the environment.
• Mandatory external verification: The requirement for sustainability reports to be subject to verification by an external auditor ensures the accuracy and credibility of the disclosed information, increasing stakeholder confidence in the reported data.
• Integration with corporate governance practices: Companies must integrate sustainability considerations into their operations and governance strategy, making sustainability an essential part of business management and strategic planning.