Guest post by: Juanjo Mestre, CEO at Dcycle
The UK Sustainability Reporting Standards (SRS), based upon the ISSB’s IFRS S1 and IFRS S2, were finalised earlier this year. These voluntary standards are designed to encourage companies to disclose their material sustainability and climate-related risks that have the potential to introduce significant financial implications.
The SRS is raising the standard. In the past, businesses could make sustainability claims throughout their marketing content, producing different evidence to support their statements. The SRS exposes what many businesses cannot see, manage and assess in their sustainability data across their current fragmented systems. Now, businesses are not expected to simply report upon their climate-related data, they need traceable and accurate evidence to back their claims.
Voluntary standards driven by increasing scrutiny
Over the past few years, senior leaders and investors have become increasingly interested in the validity and source of their sustainability data. Because of this, businesses should view the newly finalised standards as an opportunity to improve how they gather ESG data to back sustainability claims.
The FCA is expected to confirm final reporting rules in a Policy Statement this autumn, following its CP26/5 consultation. That means that companies could only have a few weeks to prepare until the reporting period begins. Those which work on gathering their data now will be best prepared to meet the standards in their entirety.
Even though the SRS is not a mandatory requirement for all businesses today, this reporting exercise has become critical to inform business decisions. It is no longer just a resource for marketing, but it directly influences supply chain decisions across a business, from material sourcing to packaging suppliers. As sustainability data increasingly shapes the decisions of procurement teams, businesses will need to demonstrate data traceability to know where to take the most impactful action.
The root cause of unsupported claims
The UK SRS is exposing existing challenges in the realm of sustainability. While many businesses have been making sustainability claims for years, some still lack the data to produce reliable, traceable evidence of their environmental footprint.. As it stands, most businesses are completely underprepared for this shift.
Traditionally, CSOs use spreadsheets to generate a sustainability report, gathering data from fragmented systems and teams. When data is owned by different employees and is manually managed through isolated processes, it becomes impossible for businesses to have a clear picture of what data they have, where it comes from and how it was measured.
For instance, the finance team may hold supplier spend, whereas the procurement team might own product information, and the sustainability team has to make sense of all this information to calculate carbon emissions. Without moving these fragmented data into one place, businesses will struggle to confidently report and support their claims.
As such, sustainability data is increasingly being regarded with the same importance as financial data.
Creating a data foundation
In a climate where scrutiny over the reliability of sustainability data increases, it is no longer enough to report for the sake of it. Instead, businesses need to look at adopting the same approach of financial filings to sustainability reporting. As ESG data continues to influence the wider operations of a company, businesses need to be able to understand, report and use it in the same way as financial data.
The first step is to create a solid data foundation by gathering all the data with one single methodology and in one single place, whether it’s in a new spreadsheet or a reporting software.
By connecting financial and non-financial data, businesses will not just improve reporting but will use the UK SRS report as an opportunity to enhance their entire business function, improving their decision making. Connected data ensures businesses can fully understand risks, cost and environmental impact in one place, helping them make changes today which offer benefits.
Beyond sustainability claims
The businesses with reliable sustainability figures will have no problem answering to customers, investors, suppliers and regulators with confidence.
Sustainability claims have now become data claims. The SRS should be treated as an opportunity to optimise business decisions, from product material costs to supplier partnerships. It also should be welcomed as a chance to improve how financial and non-financial information speak to one another across an organisation.
The companies that fully embrace the UK SRS will not just make better claims, they will be the businesses that can confidently report reliable data and use it to improve the entire function of their company.
