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  • Writer's pictureHale Portfolio

Sustainability Reporting for SMEs

The government has stated that the environment will be “at the heart” of efforts to rebuild the global economy after the pandemic and having been gifted David Attenborough’s A Life On Our Planet for Christmas, I hope that this is the case.

McKinsey defines sustainability reporting as “a document containing a set of sustainability disclosures from an organization for a period of time. It can be a stand-alone document or a component of the annual report”. The concept was first developed in the 1990s, with the first sustainability-reporting guidelines published in 2000 by the Global Reporting Initiative (GRI). Fast forward to 2021 and research by KPMG shows nearly all (96 percent) of the world’s largest 250 companies report their sustainability performance.

Presently, there is a vast range of guidelines and frameworks to follow, which means there can be stark differences in the stakeholders that companies choose to address and which information to make public. However, the UK government has announced its intention to make TCFD-aligned disclosures mandatory across the economy by 2025, with a significant portion of mandatory requirements in place by 2023.

So what about SMEs? With the confusion over which guidelines to follow and perhaps no dedicated team or department, it can be hard for SMEs to know where to start when it comes to sustainability reporting. In this article, I have outlined the reasons why companies should consider reporting and how this can be done.

Why should my SME bother with sustainability reporting?

  • Firstly, the Harvard Business School review, found that organisations that integrated sustainability risks into the overall governance architecture of an organisation outperform those that do not.

  • Better information will allow companies to incorporate climate-related risks and opportunities into their risk management and strategic planning processes. There are sustainability issues along the full supply chain and identifying these can reduce a company’s exposure to financial, legal, strategic, and regulatory risk.

  • Your findings will help you identify where you should allocate your resources.

  • Evidence shows that companies with strong corporate values and demonstrate good social responsibility benefit from an increase in productivity and employee morale. Not only does this help create a shared sense of purpose for employees and customers, it enables companies to attract, retain and motivate talent who are looking for more than just financial remuneration.

  • Sustainability reporting can help protect a corporation's reputation and gain a competitive advantage. Furthermore, improved brand reputation can also help attract investment.

  • Finally, investors want to see non-financial related data and understand the environmental and social impacts of a business. Being a transparent and responsible business can help build trust with investors.

I am convinced! What now?

If the above reasons have convinced you it is time to start reporting on the sustainability of your own business, then below is an introduction to the steps to take –

  • First things first, you need to provide context by summarising your business and the market environment in which you function. This overview should be concise and highlight the areas where sustainability fits within your business.

  • Outline your sustainability strategy and goals over the short, mid, and long terms. Indicate how the strategies and goals fit in with your overall corporate goals. Demonstrate how you will ensure sustainability filters through the business by outlining your action plan, for example, department-specific targets, employee engagement initiatives, etc.

  • Determine your sustainability KPIs and explain why they are relevant. Ensure your targets are SMART and what steps you will take to meet them.

  • Ensure you present a balanced picture by sharing the good, the bad, and the ugly. If things didn’t quite go to plan and targets aren’t being met, explain what happened and how it will be rectified.

  • Identify both the sustainability opportunities and risks that your business faces and how you plan to mitigate the risks whilst maximising any opportunities.

  • Demonstrate the impact of your sustainability strategy on your finances. Provide specific figures for any profit or losses made as a result of your sustainability strategy.

  • Outline how staff are incentivised to meet the sustainability targets. Include details of remuneration and non-financial incentives. What training will employees need to take? Who has overall responsibility for the delivery of the plan? Where do they sit within the overall governance of the business?

  • Include how you communicate with internal and external stakeholders on the plan and how do you deal with any issues raised as a result of the communication?

  • Ensure the reports are logically set out, readable and that key information is easy to find. Think of different ways to communicate the report, for example, use videos and infographics as tools to deliver the information.

  • Remember it is not enough to introduce the reporting, it needs to be assessed and updated annually, ideally with quarterly or even monthly reviews.

More information

  • For customised guidance, the B Impact Assessment website has best practice guides covering employees, environment, community, and governance with practical advice and steps to take.

  • The GRI, who provide the world’s most widely used standards for sustainability reporting has a guide on getting started here.

  • The Task Force on Climate-related Financial Disclosures (TCFD) offers online courses to help organisations fill the knowledge gap and enhance their disclosures of climate-related information. These courses are suitable for anyone interested in learning more about climate-related disclosure and the TCFD.

As SMEs, it is easy to think that this is too big a problem and it is up to the larger corporations, but we must remember that collectively, our small actions add up and if we pull together, we can make a huge impact.

If you would like to discuss sustainability reporting for your SME or have any other query regarding your SME business finances, then please contact me. As a part-time Finance Director, I tailor my experience within large corporates to benefit SMEs and I have a passion to help business owners achieve their potential.

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