Seminar The Future of non-financial reporting 2019

Reflections on ‘The future of non-financial reporting’ 2019

On October 4th Sustainalize and KBC Group joined forces to offer insights into the sustainability reporting landscape, practical lessons from companies and other stakeholders’ perspectives. The seminar was hosted at the KBC Group head office in Brussels. More than 80 participants, representing different Belgian organisations, came to learn more about reporting sustainability information.

The key-note speakers

As an introduction, Nick de Ruiter (co-founder Sustainalize) sketched the landscape of sustainability reporting. He showed the audience that over the years many different guidelines and frameworks have been developed. One of the current debates is whether we need more (sector)specific guidelines, or a more converging framework. And if we work towards an overarching guideline, how would this become applicable to many organisations at once? Furthermore, Nick addressed the trends of digital first reporting and impact reporting.

Overlooking the next decade, Alain Deckers (Head of Unit, DG FISMA, European Commission) stressed that in working towards a European Green Deal a Sustainable European Investment of over €1 trillion is needed, part of which has to be financed by the private sector. These investors need high quality standardised sustainability information. The EC has contributed to better information with the non-financial reporting framework (NFR) adopted in 2014. The NFR has proven significant impact: today thousands of organisations report on sustainability matters, whereas before there might have been around one hundred. Furthermore, the EC advocates digital reporting as this enables ‘tagging’ of sustainability information, facilitating big data analyses so crucial to investors.

Next, Katelijn Bohez (communications and investor relations manager at Bekaert) shared reporting challenges she faced during her 30+ years of experience at Bekaert. These include maintaining a good reputation as a responsible company and reporting ever more data. Katelijn advocates a structured, strategic process with a good ‘roof’ and supporting ‘bricks’. A good roof is an aspiration or a long-term goal to strive for. But you can’t build a roof without a proper foundation: ‘bricks’. This means a decent management structure and operationalised sustainability targets deployed within departments and even at an individual level.

The panel: who is reading your report?

During a panel discussion facilitated by Lola Debersaques (Partner Sustainalize), experts represented external stakeholders’ interests and wishes for sustainability information. Aleksandra Palinska (Senior Regulatory Policy Advisor at EFAMA) represented the investors’ perspective. She stated that the even though there has been progress in  sustainability reporting, the quality and granularity of non-financial information currently disclosed by listed companies is not sufficient to provide detailed disclosures in line with the Sustainability Disclosures Regulation or EU taxonomy.

Aleksandra raised attention to ESG data: “The insufficient availability and quality of ESG data is the real problem. Robust, consistent, standardized, reliable and public ESG disclosures by investee companies are essential to make Sustainable Finance work in practice and channel the necessary financing to sustainable projects. Meanwhile, as pointed out by the Alliance for Corporate Transparency project, European companies fail to report meaningful information about their impacts on society and the environment. The report finds that 90% of companies report on climate change, but merely 47% specify clearly what precisely their policy was designed to achieve and how.”

A possible solution came from Hilde Blomme (Deputy CEO of Accountancy Europe) providing the accountants’ perspective: “We found more than 1000 reporting frameworks, and a certain degree of standardisation is needed. We expect that the EU has a leading role to play and try to find an alliance of the winning.” Sectorial benchmarks, such as SASB, could contribute to more comparability, as well as ‘core and more reporting’.

David Szafran, Supervisory board member at the FSMA and lawyer at Eubelius, represented the legal perspective. He opened up the debate whether to widen the scope of mandatory sustainability reporting to smaller and/or non-listed companies. One of the nuances he made is that, at least in Belgium, there are already significant disclosure requirements, amongst which SMEs, including the social balance sheet and health and safety requirements.

Sebastien Godinot, Economist at WWF International, represented the society’s perspective and advocated for replacing the term ‘non-financial’ to sustainability reporting. He presented a WWF research report which found that of 100 companies under study, 50% either don’t report their most relevant risks, or do so in an “extremely vague” manner. Ergo: reporting guidelines are failing significantly. Sebastien stressed the importance for companies to report sustainability information that relates to the core strategy. For example, banks should rather report on the impact of their loan portfolios than on the carbon footprint of their offices and business travel.

The break-out sessions

After a brief break, the audience dispersed into three break-out sessions. In his break-out session Nick de Ruiter gave helpful and instructive tips about how to start with non-financial reporting. He treated four questions to ask yourself in order to organise, structure and determine the content of your report. For each question, he provided some background information, best practices and inspiration. According to Nick, a materiality analysis is a good starting point for reporting. He further advises to take control of your own narrative and to be as transparent about your progress as possible.

Piet Verschuere (KBC Group) used his session to share practical insights in developing a climate strategy and implementing the TCFD requirements at KBC Group. KBC Group applies an outside-in and inside-out perspective. How does climate change affect our investment and insurance decisions? How does our organisation contribute to climate change? How can we reduce that impact?

Piet concluded with practical do’s and don’ts on the implementation of the TCFD guidelines. He stated that (board) leadership is crucial and that internally you cannot overcommunicate the need for climate policies to raise awareness. For climate risks, you need a longer horizon. KBC Group decided to see climate change as a mid-term rather than a long-term risk, increasing the urgency for appropriate mitigation measures. Finally, the development of scenario analyses (e.g. ‘what happens to our business model in a 4 degrees scenario?’) is needed and methodologies are tested with partners.

Yves Nissim, CSR manager at Orange Group, gave an inspiring break-out session on stakeholder dialogue. Yves shared his experiences at Orange and how he succeeded in building an open dialogue throughout the years with Orange’s stakeholders. These include its employees, investors and clients, but also many others such as suppliers, media, authorities and civil society at large.

To him, the four steps needed are (1) a dialogue (about 30 face to face meetings), (2) a script (you need to know what you want to ask your stakeholders), (3) responsiveness (to come back to your stakeholders) and (4) impact (using the insight received to make impact).

Stakeholder dialogues, once confronted with the organisation’s expectations, provide insight in the most relevant (‘material’) aspects of an organisation. Yves also expressed his ideas of bringing materiality to a more salient approach to which people are central. In his view, the question shouldn’t be ‘what is our organisation’s responsibility towards our suppliers’, but rather ‘what is our organisation’s responsibility towards the people working for our suppliers’.

Author: Jens Gronheid, consultant Sustainalize