SUSTAINABILITY REPORTING: 10 REASONS WHY ORGANISATIONS FAIL TO DISCLOSE

Sustainability reporting:

Glossy magazine-style sustainability reports often fail to live up to the hype, neglecting to highlight important issues or address the tough questions. Muhammad Bilal Farooq interviewed 50 experts to find out why the sustainability message is being buried.

Glossy magazine- style sustainability reports often fail to live up to the hype, neglecting to highlight important issues or address the tough questions. AUT Business School’s Dr Muhammad Bilal Farooq interviewed 50 experts to find out why the sustainability message is being buried.

In short, organisations don’t necessarily seek to intentionally mislead people. But the research suggests the situation is not simple. Organisations are learning what sustainability is and how to report their sustainability performance in high quality sustainability reports. Hopefully, an understanding of these ten reasons can assist regulators, preparers and users of sustainability reports, he writes.

1. Intentionally avoiding bad news: Yes, managers are afraid to disclose material bad news. This is a major reason why some sustainability reports do not reveal difficulties while others gloss over problem areas. But hang on, this is not the only reason? Sometimes there may be a host of other reasons why an issue was not covered in a sustainability report.

2. Managers are learning: The people responsible for preparing the sustainability reports are still learning how to generate a comprehensive report. Inexperienced managers will unintentionally fail to discuss an issue within the sustainability report.

3. No systems in place: Organisations new to sustainability reporting will still be developing systems to support thorough reporting. For example, systems need to be set up that help organisations figure out who their stakeholders are, what issues are important to these stakeholders and how to talk about these issues in the sustainability report. Not easy. 4. Lack of management support: An organisation needs to spend time and money preparing a good quality sustainability report. For that to happen boards must be willing to support their managers by providing them with the time and resources they need to prepare a high-quality sustainability report. 5. People don’t take sustainability reporting seriously: Managers complain nobody reads the sustainability reports they’ve spent time and effort preparing. If it’s perceived no one reads the reports then companies begin to experience sustainability reporting fatigue with board support also likely to wane. This translates into a reluctance to invest further time and resources into sustainability reporting.

6. We need information we don’t have: An organisation may need to get the data from another organisation that may not be reporting any sustainability metrics. 7. It’s the parent’s responsibility: Complex company structures, including fully-or partially-owned subsidiaries, can mean that collecting and reporting data is seen as someone else’s responsibility. The result can be an incomplete sustainability picture. 8. “Where’s the evidence?” the auditor asks: If an organisation is getting its sustainability report assured/ audited, which is a good thing, it may decide not to talk about a key issue until systems are in place and evidence available to support assurance. Hopefully this is just temporary.

9. “But they’re not doing it”: Why should one organisation have to be open and honest while everyone else carries on as usual? Organisations think that’s unfair. Regulators may need to step in to get everyone to report, to report according to an agreed set of standards and, hopefully, get external independent assurance. The NZX has done this in its new Governance Code launched in 2017 but the assurance part is still missing. 10. Just because it’s a trendy sustainability issue

doesn’t mean it’s a material issue: It might be popular on social media or getting coverage in the press, but it doesn’t always mean it’s a relevant or meaningful sustainability measure for every organisation. Organisations need to carefully decide what is important, both to the business and stakeholders, and then focus on preparing good reports covering those issues.