What are the most effective strategies for financial institutions to report their sustainability impact?

Moreover, sustainability reporting serves as a bridge connecting the financial sector to the broader societal goals of sustainable and inclusive growth. It not only highlights the role of financial institutions in the global ecosystem but also aligns their business strategies with societal values and expectations. This alignment is crucial for long-term value creation and resilience in an increasingly volatile, uncertain, complex, and ambiguous (VUCA) world.

Just to put it into perspective (as discussed yesterday in a conference), consider this: Should you rather ask yourself, 'What world would I like to give to the hands of a 3-year-old kid in my family?' It's not just about sustaining; we must also work to reverse negative impacts on the environment. The first step is becoming aware of our baseline. So, reporting sustainability impact isn't just a mandate; it's our moral obligation for generations to come. So will your company be remembered as an organization that makes things better or worse in the long run?!

Financial institutions can effectively report their sustainability impact by adopting comprehensive sustainability reporting frameworks, such as the Global Reporting Initiative or the Sustainability Accounting Standards Board guidelines. Integrating Environmental, Social, and Governance (ESG) factors into annual reports, conducting third-party audits for transparency, and leveraging digital platforms for real-time data sharing enhance credibility. Engaging stakeholders through clear, consistent communication and showcasing progress towards sustainability goals further strengthens their reporting strategy.

That is an interesting concept. Most view sustainability reporting as what am I doing and what is my impact. Financial institutions are directly/indirectly responsible for the sustainability of those they support. An independent scorecard by a NGO would be required here because of the inherent conflict of interest involved when dealing with financial institutions. This is obviously what brought about greenwashing in the first place. I’m not against self reporting, but there needs to be substantive oversight in doing so in this sector.

As sustainability reporting continues to mature and evolve, organisations can gain a better understanding of how sustainability issues impact their business & where opportunities for competitiveness & shareholder value can be found. Multiple market developments and heightened regulatory & legal scrutiny indicate that the transparency & accuracy of sustainability reporting is increasingly important. In addition to NGOs and consumers, regulator & investors increasingly demand the communication of a thorough sustainability assessment & management of related risks & opportunities. An increasing amount of financial instruments & business partners demand a clear assessment & articulation of the company’s sustainability performance.

Choosing a sustainability reporting framework involves considering multiple factors such as industry standards, organizational goals, stakeholder expectations, and reporting requirements. Commonly used framework include ISSB, GRI and ESRS, each focused on different objectives. objectives. Organisations should select a framework based on relevance, credibility, alignment with organizational values and regulatory requirements.

First and foremost, a driving factor behind any type of ESG disclosure is whether or not it is required by law. When choosing the right ESG framework or standard, it is important to align the framework’s goals and intents with your company’s goals and intents. To effectively do this, you must first understand which ESG topics are most “material” or important to your organization. Since each framework and standard will have slightly different focuses (e.g. some are more heavily skewed towards “E”-related topics while others may equally weigh “E”, “S”, and “G”), it is important to choose a framework that reflects your company’s priorities. 

If you're not legally obliged to report, then looking at the frameworks your investors, analysts and major customers use is a good place to start. Another consideration is whether your projected growth or future ownership will oblige to use a particular framework.

Double materiality is now the defining methodology to adopt in this area. The CSRD guidelines on impact and financial materiality are a great starting point on what to look at and where to start. The "how" in materiality assessments are where real differentiation comes into play. A good assessment is as much art as science and creating a report that actually delivers value to companies require skill and experience. When done well, a Double Materiality Assessment (DMA) is an extremely powerful strategic tool and creates the foundation for effective corporate sustainability.

Getting materiality right is an iterative process. It's important to choose a level of stakeholder engagement appropriate to each group from the perspective of your importance to them and vice versa. Don't forget to consider "hard to reach" stakeholders and under represented groups that are impacted by your organisation.

Integrating sustainability goals into business strategy and daily operations is crucial. Besides aligning with overall vision and values, it's vital to embed them into performance management and incentive systems. This ensures employees are motivated to contribute, with sustainability metrics factored into evaluations and tied to compensation or bonuses.

💡 "Think Big. Start Small. Scale Fast." Sustainability begins with the first real action, no matter how modest, and grows exponentially when pursued with ambition and agility. So yes, think strategically, set long-term visionary goals, but do not delay taking the first steps as your objectives are not detailed enough. You need to refine them anyway as you progress...

Third party assurance is becoming the new normal. With sustainability data moving to become as stringent as financial data, reasonable assurance is now expected. Frameworks like CSRD have included this and others will follow suit.

Leading ESG mgmt SaaS platforms incorporate compliance to various reporting standards and frameworks within their system (GRI, UNGC, SDGs, various industry-specific standards). And most of them do a pretty good job keeping their reporting platform up-to-date to the continuously evolving regulations.

Strategic Sustainability Report • Report extensively on all material ESG aspects • Top-down sustainability strategy, roadmap, roll-put plan • Clear yearly goals, KPIs, track record • Focus on E&S risk management, opportunity recognition • Long-lasting relationships with business partners based on transparency, accountability For Investors/Financiers • Identify investment opportunities that are resilient, future oriented/adjust interest rates for sustainable finance instruments • Assess impact made through their investments in your company For Buyers • Understand measures you take to address material risks • Understand indirect impact they could make through partnering • Assess reputation risk they enter by working with you

There is potential for the sustainability report to drive internal innovation and continuous improvement. Financial institutions can use the insights gained from the report to identify opportunities for innovation, develop new products or services, and differentiate themselves in the market. Additionally, the report can serve as a tool for identifying emerging trends and market opportunities, helping the institution stay ahead of the curve and adapt to changing customer preferences and regulatory requirements.

In my opinion (based on collective experience in our community of practice) there is an importance of scale AND depth of key (sybolic and representative) stories/cases of impacts on planet and people (may they be positive or negative).

Over time, companies and countries that do not respond to stakeholders and address sustainability risks will encounter growing skepticism from the markets, and in turn, a higher cost of capital. Companies and countries that champion transparency and demonstrate their responsiveness to stakeholders, by contrast, will attract investment more effectively, including higher-quality, more patient capital. Investors want to see balanced reporting that showcases a company’s targets and progress against the SDGs. Companies should consider risk factors and impacts on people and the society in a focused manner and strive to put out concise, consistent, current and comparable data.