Sustainability Reporting: What is it and Why Does it Matter?

At a glance

• Main takeaway: New federal and state regulations will require companies to provide a sustainability report disclosing their environmental impact, including GHG emissions. 
• Impact on your business: For companies to secure contracts, such as government contractors, they must select a sustainability reporting framework, which can come with a variety of complexities.
• Next steps: Aprio’s Sustainability Advisory Practice can guide you through the framework selection and perform a materiality assessment to calculate your GHG emissions across Scopes 1, 2, and 3.

Simplify your GHG emissions calculations with Aprio. Contact our team for a complimentary consultation.

The full story:

Government regulators, both federal and state, are intensifying their focus on sustainability reporting. California, New York, and Washington have recently enacted ambitious sustainability plans that will significantly impact companies operating within their borders.

While many businesses may believe they won’t be directly affected by these regulations, the reality is that due to the nature of Scope 3 emissions, these regulations will inevitably trickle down throughout the supply chain. To comply with the growing demand for environmental transparency, companies will need to adopt a suitable framework and produce comprehensive sustainability reports.

What is sustainability reporting and how can it benefit your company?

At its core, sustainability reporting is a way for companies to disclose their environmental, social, and governance (ESG) progress as well as their greenhouse gas (GHG) emissions. A comprehensive sustainability report doesn’t just focus on climate and environmental impacts, it also considers financial-related risks. While sustainability reporting offers companies a variety of benefits, in the long run the most advantageous ones are:

• Improved brand reputation and customer loyalty
• Enhanced access to capital and potential for lower borrowing costs
• Reduced risk of regulatory non-compliance
• Improved ROI, operational efficiency, and cost savings
• Increased employee engagement and morale

Four sustainability reporting frameworks your business should know

With an increase in sustainability regulations, governments are requiring companies to use standardized frameworks to report on their environmental progress. There are four commonly used frameworks:

• The Carbon Disclosure Project (CDP) – is the most widely used framework for U.S. companies to report on their environmental and supply chain impacts, such as GHG emissions, water usage, and deforestation. The CDP coupled with the GHG Protocol, provides companies with a comprehensive sustainability report.
• The Global Reporting Initiative (GRI) – provides guidelines for companies to disclosure the social and governance structures they have in place, not just environmental. This framework allows companies to look closely at what they are doing for their employees and how they are managing their boards.
• The Sustainability Accounting Standards Board (SASB) – takes a close look at all three parts of ESG but is heavily focused on the environmental side. This framework is largely used by the European Union, however, for U.S. companies who work with a European supplier, they too must adhere to the SASB regulations. 
• The International Sustainability Standards Board (ISSB) – key focus is climate but with a holistic approach that encompasses environmental, governance, strategy, and risk. This framework is also largely used by the European Union and like SASB, U.S. companies who work with European suppliers or are considering expanding their value chain internationally, must comply with these regulations too.

How to pick a sustainability reporting framework?

There are no standard rules to follow when selecting a framework. However, companies need to fully understand what requirements they need to meet and select a framework that provides that same reporting. For example, if a U.S. company needs to disclose their environmental impact, the most commonly used framework would be the CDP and GHG Protocol because they provide the exact guidelines on each scope that needs to be disclosed.

Let’s take a look at sustainability reporting frameworks for certain industries:

• Government Contractors – With an increase in RFPs requiring GHG emissions disclosures, government contractors are looking ahead at the proposed federal supplier, climate risks, and resilience requirements that they must adhere to. Many government contractors are using the CDP framework and GHG Protocol to measure their scopes and what goes into each category because of the technical points that align directly with Oasis+ and Alliant 3.
• Professional Services – Since the professional services sector is so broad, there are many companies that can be impacted by Scope 3 emissions requirements when looking at the value chain as a whole. Say you are an IT company that is a federal contractor and also a supplier of a larger company based in California. Your company would have to adhere to the new sustainability regulations in California since you are part of their supply chain.
• Energy and Utilities: Due to intense scrutiny from investors and significant environmental impacts from relying on fossil fuels to generate electricity, the ideal sustainability frameworks for the energy and utility sector are CDP, GRI, and ISSB. While each of these frameworks offer environmental reporting, the GRI framework provides a more holistic approach to a company’s sustainability performance. However, GRI reporting is more complex than CDP. A growing trend has been combining GRI with CDP as their reporting provides a more comprehensive sustainability picture. For companies with an international presence, ISSB is globally recognized with standards that meet environmental compliance across various countries.
• Retail and Consumer Goods: Companies within the retail and consumer goods sector often have significant environmental impacts and are under pressure from both investors and consumers to improve their sustainability performance. Leveraging the CDP, GRI, or SASB frameworks would help these companies produce a comprehensive sustainability report.

Ultimately, the best sustainability framework for a company will depend on its specific needs and goals. It may be beneficial to consider a combination of frameworks or to develop a customized approach that incorporates elements from multiple standards.

The bottom line

Sustainability reporting is quite extensive and technical, and understanding which framework to select can come with a variety of complexities. It’s beneficial to leverage a partner that is familiar with the concepts of each framework to select the right option for your reporting needs.

Aprio’s Sustainability Advisory Practice can guide you through the framework selection process and perform a materiality assessment to calculate your GHG emissions across Scopes 1, 2, and 3. Schedule a consultation today.

Related Resources/Assets/Aprio.com articles/pages

Federal Policies on Sustainability for Government Contractors: Part 2
The Road to Sustainability – Episode 5 – Sustainability in Government Contracting
Federal Policies on Sustainability for Government Contractors: Part 1
The Road to Sustainability – Episode 1 – Greenhouse Gas Emissions