What Goes Into a Corporate Sustainability Report

The umbrella term sustainability covers a broad territory, from business ethics to data privacy and security to carbon emissions. How can companies know if they’re capturing and disclosing the right information?

Without shared metrics, it can be difficult to compare corporate sustainability efforts apples to apples. Companies must contend with fractured global regulation, a crowd of stakeholders, and industry-specific topics. As rules change, many firms are left unsure if they’re sharing the right data.

This reference guide explains what goes into a sustainability report and maps out an emerging field of corporate strategy.

Sustainable investing emerged in the 1970s with a flurry of new, sometimes conflicting, terminology. 

Sustainable investing covers a spectrum of approaches, from avoiding poor financial or non-financial options to pursuing positive returns and sustainable outcomes. ESG investing, a subset of the broader term, is one approach that considers environmental, social, and corporate governance factors as well as other financial criteria. ESG risks can materially affect a company’s performance.

Because the field is so nascent, the metrics used to measure ESG factors are still in development. Debate remains over the relevance of down-funnel data points like indirect carbon emissions.

Today companies and investing firms also face a host of stakeholders with varying degrees of influence on ESG reporting.

Reporting standards and frameworks lay out what information should go in sustainability reports. Regulations vary dramatically by region. While the European Union has written sustainable-investing guidelines with the EU Taxonomy and Sustainable Finance Disclosure Regulations, legal restrictions have lagged in the United States.

Nongovernmental organizations, nonprofits, and sustainability coalitions have created their own guidelines on what data to disclose. This means that disclosures can change between industries, depending on what framework you follow.

Some focus exclusively on climate information, while others cover environmental, social, operational governance, and economic data. Some organizations offer de facto standards, while others offer more high-level guidance.

ESG ratings agencies might be one of the most visible stakeholders in the investing field because of the services they provide. Using public data but their own methodologies, ESG rating firms score or rank companies. If a company joins a sustainability agreement, sustainability partnerships and initiatives can also shape its approach to reporting.

Clear and consistent terminology ensures we speak the same language when we discuss corporate sustainability. Here are a few of the key terms, standards, and frameworks to know.

Single materiality refers to the financial relevance of key measures and events and their relevance to the long-term success of a company or organization. Material issues influence the financial health of a company and its stock. How well a company manages material issues can become a risk or an opportunity for investors.

Double materiality introduces the consideration of disclosure topics that matter to stakeholders. Double materiality is based on the idea that a company’s operations also touch its workers, community, and the greater natural environment. It considers issues that are important to investors but won’t affect the bottom line in the short term.

The definition of materiality has split asset managers into two camps. In the United States, the Securities and Exchange Commission has not yet introduced double materiality regulations, but the European Union has already put some of these factors into play. Morningstar’s Corporate Sustainability Report outlines how we think about material issues in our business model.

Reporting frameworks help companies structure and prepare topical areas for disclosure. Frameworks establish principles for what companies should include but aren’t explicit about the exact data.

Reporting standards get more prescriptive on the specific data and information that firms should disclose, without determining the necessary presentation. Standards drill down into industry and subindustry details to allow for comparison between companies in the same field.

While overall, asset managers agree on the need for consistent international standards, they often disagree on the specifics. Draft standards from the International Sustainability Standards Board sparked dissent from major fund managers.

Sustainability ratings assess how well companies or a fund’s underlying holdings manage material issues. Ratings compare sustainability performance against industry peers. It does not disadvantage entire industries or traditional “sin” stocks.

To create its ratings, Morningstar Sustainalytics identifies the most relevant ESG issues by industry. Analysts assess a company’s stated policies and programs, disclosure transparency, and sustainability performance with more than 70 indicators.

Client communications take more than a one-size-fits-all approach. With our ESG reporting solutions, you can tailor reports to nuanced investing motivations. Explore pre-built templates, regulatory reporting guides, and more.