Recently, there has been a lot of discussion about environmental risk and whether or how it should be communicated. Customers, workers, regulators, and other stakeholders are calling for businesses to be more open and accountable. The reporting of sustainability, climate change, energy use, pollutant outputs, water management, and other effects on the environment, however, lacks a consistent standard.
How vulnerable are you? What should you do in response to this?
New Regulations are Coming
Environmental risk reporting is presently optional for the most part. That does not imply, though, that you should wait around while everyone else decides what to measure and how to measure it.
In fact, the day will eventually come when environmental risk disclosures are required. The EU is leading the way with its proposed Corporate Sustainability Reporting Directive, which mandates that companies follow new EU sustainability reporting standards currently under development. If adopted, companies would likely need to begin reporting accordingly in 2024.
While this is going on, Germany has stepped up with its new corporate due diligence law, which mandates that businesses identify supply-chain risks related to human rights abuses and environmental degradation and put in place a successful method for managing such risks.
In the United States, the Securities and Exchange Commission is developing a proposal that would mandate that public corporations inform investors about the risks associated with climate change in regulatory filings like annual reports.
In conclusion, there is no lack of regulatory activity in the area of sustainability. Regulation is inevitable; the only issue is when it will happen. Governments and investors are increasing the pressure on businesses to increase their level of accountability and transparency.
Businesses who don’t take the initiative to disclose information about their environmental effect risk jeopardizing their brand, reputation, market position, and access to capital.
Frameworks for Environmental Risk Reporting
There are many things that businesses can do right away to provide structure and controls to reporting on environmental risk, even though specific standards are still to be determined.
Information on measuring and reporting environmental risks is provided by a number of independent international standards organizations.
The Global Reporting Initiative (GRI) is a global standards-setting body that assists organizations, governments, and other groups in comprehending and communicating the effects of their operations on climate change, human rights, and corruption.
A nonprofit organization called the Sustainability Accounting Standards Board (SASB) creates and disseminates sustainability accounting standards to enhance corporate reporting.
The Taskforce for Climate-Related Financial Disclosures (TCFD) was established with the goal of enhancing the caliber, consistency, and transparency of disclosures relating to climate change for the benefit of investors, lenders, and insurance underwriters.
Reporting Environmental Risk: How to Do It
Since no single framework offers a wholly comprehensive perspective, many businesses opt to combine many frameworks’ individual components to create their own. You must therefore choose which information to make public.
Key is transparency. The correctness of any disclosure of environmental risks is openly contested by stakeholders. Think about these three methods to increase transparency:
Align your disclosures with your organization’s beliefs and goals. Don’t limit your reporting to the easiest calculations. This is your chance to show that you care about sustainability and development.
Be dependable while reporting. The information you’re reporting gains consistency and credibility when you consistently apply the same methods. Additionally, it offers reassurance that you aren’t cherry-picking the metrics that are most appealing at the moment.
Observe what your peers are reporting. Giving your peers access to comparable indicators enables stakeholders to evaluate performance across businesses and make wise decisions.
The difficulty is to determine whether the information already exists inside your business and gather it from wherever it may be located once you have selected what information to submit. knowing what data is available and where it’s located, and who owns it can be one of the most difficult parts of reporting on environmental risk.
Most Popular ESG Frameworks
- 33% Global Reporting Initiative (GRI)
- 32% Sustainable Accounting Standards Board (SASB)
- 25% Task Force for Climate-related Financial Disclosures (TCFD)
Frameworks for Environmental Risk Reporting
There are many things that businesses can do right away to provide structure and controls to reporting on environmental risk, even though specific standards are still to be determined.
Information on measuring and reporting environmental risks is provided by a number of independent international standards organizations.
The Global Reporting Initiative (GRI) is a global standards-setting body that assists organizations, governments, and other groups in comprehending and communicating the effects of their operations on climate change, human rights, and corruption.
A nonprofit organization called the Sustainability Accounting Standards Board (SASB) creates and disseminates sustainability accounting standards to enhance corporate reporting.
Finding, combining, and creating reports will be quite difficult if data is gathered in a number of disjointed spreadsheets or point solutions.
On the other hand, businesses who use integrated risk management systems to gather all risk-related data in one location have a distinct edge. Existing data is readily available and simple to locate. Additionally, standardizing policies, practices, controls, and governance makes it simpler to give stakeholders transparency.
Risk information cannot be kept in isolated repositories dispersed throughout the organization if environmental risk is to be successfully managed. It must be reliable, accessible, and credible. The need for environmental risk metrics transparency is growing, therefore implement the procedures and technological tools necessary to tell the story you want stakeholders to hear.
For more on environmental risk reporting, download our e-book, Taking a Stand on ESG, and learn more about Riskonnect’s integrated risk management solutions.