Sarah le Roux (Visma Connect): ‘Sustainability disclosure is NOT a silver bullet’

“Sustainability-related disclosure is here to stay. Disclosure is not a silver bullet. However, it is almost unmatched in its ability to alter behaviour at a global scale.” These were John Turner’s words (CEO of XBRL International) at the start of the Data Amplified Virtual 2022 conference this past December. Hosted by XBRL International, this conference is a global gathering of experts in structured data, digital reporting, technical standards and related topics. Visma Connect attended as member of XBRL Europe. Sarah le Roux reports.

This year’s conference centred on the digitisation of sustainability reporting and emphasised the advantage of having a global baseline across sustainability reporting frameworks. But why is the role of digitisation so important in achieving this?

Turner’s words summarise a common understanding that has been rapidly spreading across corporations, customers, investors, and regulators globally regarding the need for high-quality, audited, digital and accessible ESG data. Such data will play a significant role in shaping feedback loops that ensure organisations are continuously improving their ESG performance over time. Effective feedback loops can provide extremely strong incentives; however, their reliability depends heavily on the comparability of the underlying disclosure, both against past performance as well as relative to peers in the same industry. Comparability, in turn, requires clearly defined, standardised definitions and methodology to be used across organisations and geographies.

Why is mandatory disclosure important?

Until recently, disclosure on sustainability metrics (the environmental and social components of ESG) was largely voluntary, with many frameworks to choose from. The use of different measurement approaches and the ability to selectively apply disclosure meant that even where companies adopted the same disclosure framework, analysing relative performance was often futile. For example, where one clothing manufacturer chose to report on waste per unit manufactured, others might decide to report based on the weight or volume of goods produced instead. None of these metrics is necessarily wrong, but the lack of consistency limits the usefulness of the disclosure. The introduction of detailed mandatory disclosure requirements can go a long way towards solving these challenges.

This year’s conference centred on the digitisation of sustainability reporting and emphasised the advantage of having a global baseline across sustainability reporting frameworks. But why is the role of digitisation so important in achieving this?

Turner’s words summarise a common understanding that has been rapidly spreading across corporations, customers, investors, and regulators globally regarding the need for high-quality, audited, digital and accessible ESG data. Such data will play a significant role in shaping feedback loops that ensure organisations are continuously improving their ESG performance over time. Effective feedback loops can provide extremely strong incentives; however, their reliability depends heavily on the comparability of the underlying disclosure, both against past performance as well as relative to peers in the same industry. Comparability, in turn, requires clearly defined, standardised definitions and methodology to be used across organisations and geographies.

Why is mandatory disclosure important?

Until recently, disclosure on sustainability metrics (the environmental and social components of ESG) was largely voluntary, with many frameworks to choose from. The use of different measurement approaches and the ability to selectively apply disclosure meant that even where companies adopted the same disclosure framework, analysing relative performance was often futile. For example, where one clothing manufacturer chose to report on waste per unit manufactured, others might decide to report based on the weight or volume of goods produced instead. None of these metrics is necessarily wrong, but the lack of consistency limits the usefulness of the disclosure. The introduction of detailed mandatory disclosure requirements can go a long way towards solving these challenges.

Sarah le Roux, Senior Business Consultant Sustainability Reporting at Visma Connect B.V.