Copyright Forbes
There is a subtle shift afoot in the world of corporate sustainability reporting that has big businesses sweating the details on how they track and report on ESG related risks. As sweeping government mandates like the European Union’s (EU) Corporate Sustainability Reporting Directive (CSRD) and Corporate Sustainability Due Diligence Directive (CSDDD) become ever more unpredictable, non-regulator stakeholders are demanding more detail than ever on sustainability risk. Over the course of attending several recent industry conferences and many conversations with global multinationals, the trend has become clearer. In an increasingly volatile economy where the future of sustainability regulation is still very much uncertain, trading partners are demanding more transparency, not less. Increasingly, in the absence of definitive regulation, these private sector stakeholders are becoming the main drivers of sustainability disclosure reporting. Ticket to Trade This is a fascinating shift in the business narrative around sustainability. Over the last decade, we saw a wave of hype-driven greenwashing that has recently shifted to a quieter pattern of greenhushing. Now, we’ve entered a new era of no nonsense, data-driven corporate transparency that’s being driven by basic business interests. Businesses that want to be able to trade freely in every market, with every big trading partner, in an environment where tariffs and other wildcards can change everything overnight, have quickly realized that sustainability data has become a ticket to trade. Particularly in the current marketplace where trade routes, regulatory requirements and vendor relationships are as volatile as ever, global businesses do not have time to waste betting on regulatory sentiment. They need a strong view of what regulations really matter and where, and they also need the ability to switch gears without hesitation. In addition, they need to be able to identify new manufacturing hubs and react to changes in supply routes and new markets, and that can only happen when they have a real-time, comprehensive view of their true compliance requirements, risks and opportunities. New Era of Pragmatic Transparency Let’s look at the general procurement process for the typical multinational business, for example. In all sectors, preparing the response to requests for proposal (RFP) is a sizeable undertaking. Increasingly, these requests contain demands for detailed sustainability disclosures that get down into nitty gritty details addressing everything from emissions, to water management, to protocols for handling hazardous or dangerous goods. And, increasingly, the information these partners are looking for can be presented in the form of hard numbers that are reviewed and verified by third-party consultants and assessors. ESG ratings agencies also have a major part to play in[MF3] procurement activities. All of which require detailed, factual, verified data. MORE FOR YOU In fact, the process of vetting sustainability risk has become so detailed that the UN provides a comprehensive database of public and private companies offering climate and environmental risk solutions, along with a detailed breakout of the types of risks each company tracks, the specific tools they use to evaluate those risks, and even down to the contact person responsible for overseeing the process. The Readiness is All It’s not just trading partners who are demanding this level of detail. According to a recent PwC study, pressure from investors and customers to provide sustainability reporting and data has continued to increase over the past year, despite regulators in some areas pulling back on mandatory disclosure requirements. Moreover, 66% of firms say they have increased the resources they are allocating to sustainability reporting, and 38% say they are using this information to inform business strategy – not just to address compliance requirements. The fact is that the last decade of sustainability-focused regulatory activity put a spotlight on the very real financial and business risks companies face at the hands of climate and environmental uncertainty. While regulatory drivers of sustainability disclosure reporting have become more uncertain in recent months, the business drivers have only become more focused and data driven. Investors, customers and trading partners demand to know what companies are doing to address these risks, and those that make it readily available are setting themselves up for success, whatever future regulations may look like.
