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ESG

Sustainability, audits, and DEI: Tying it all together

Thomson Reuters Tax & Accounting  

Thomson Reuters Tax & Accounting  

What is sustainability auditing ?

Due to increased demand from investors and other stakeholders, and the benefits to be gained from becoming more environmentally responsible, a growing number of companies are incorporating sustainability into their business strategies. 

Sustainability refers to a company’s strategy to reduce its negative impact on the environment and overall society.   

There are a number of sustainability-driven practices that companies can implement, such as cutting overall emissions by a certain percentage, lowering energy usage, and reducing their carbon footprint. 

So, what is sustainability auditing ? In simple terms, it assesses how well a company is executing on its sustainability development goals. Sustainability auditing  is considered a major component of a company’s business strategy as it helps ensure that a company is both sustainable and profitable. An audit enables companies to identify where improvements need to be made, and companies can compare their performance with others in the same industry. 

Take, for example, Walmart. The big box retailer has set forth a number of sustainability goals, including:    

  • Zero emissions in its own operations by 2040  
  • 100 percent renewable energy by 2035  
  • Zero waste in its operations in the U.S. and Canada by 2025  

For today’s businesses looking to remain relevant and competitive, embracing a sustainability strategy isn’t a matter of “if” but “how.” Doing so is essential in the face of increased pressure from investors and other stakeholders, growing consumer demand, and regulatory requirements. 

The benefits of a sustainability strategy

90 percent of executives believe that sustainability is important. However, only 60 percent have sustainability strategies in place. Although embracing sustainability is still developing, the benefits to be gained are clear and the trend is only expected to continue in the years ahead.

The benefits in implementing a sustainability strategy are both financial and ethical. As outlined by IBM, some of the advantages include: 

  • Environmental responsibility is very or extremely important when choosing a brand, according to 55 percent of consumers. 
  • Environmentally sustainable companies are more attractive employers, according to 71 percent of employees and employment seekers. 

Many of the worlds top economies have or are developing corporate disclosure requirements around environmental impact, driving businesses to curb greenhouse gas (GHG) emissions.

What is a sustainability report?

A sustainability report, or environmental, social and governance (ESG) report, is essentially a report published by a company about ESG impacts. Side note: the terms “ESG,” “sustainability,” and “corporate social responsibility” (CSR), are used interchangeably.

The report is an important communication tool that enables the company to be more transparent about the risks and opportunities it faces.

In recent years, sustainability reporting has been on the rise. In fact, KPMGs 2022 global Survey of Sustainability Reporting found that of the worlds top 250 companies, 96 percent are providing some form of sustainability reporting.

According to KPMG, many smaller companies have just started embarking on their ESG path, while many others are not yet assuring their ESG metrics.

So how can companies produce a solid sustainability report? As outlined by global nonprofit organization BSR, there are five steps to good sustainability reporting

  1. Set priorities and develop a strategy  
  2. Build the structure and gather data  
  3. Develop and revise content  
  4. Finalize and communicate  
  5. Review learnings and iterate  

Do sustainability reports have to be audited?    

No, auditing sustainability reports is not required; however, it is highly recommended. Sustainability auditing significantly enhances reporting credibility.    

According to KPMG’s 2022 survey, only 41 percent of U.S. companies include a formal assurance statement as part of their sustainability report in the annual financial report.    

How can sustainability audits measure progress?

Measuring progress and evaluating company performance as it relates to their sustainability goals can be done through a sustainability audit.   

As noted earlier, auditing sustainability reports  is not required, but it is highly recommended.  

According to ESG | The Report, “Sustainability audits are important because the main purpose behind them is to make sure that the company is not only sustainable, but also profitable. These types of assessments are used as a benchmark for companies and organizations to improve upon in order to become more sustainable.”    

What are the 3 areas of a sustainability audit? 

Typically, a sustainability audit consists of three specific areas, according to ESG | The Report. These are:   

  • Investment practices  
  • An evaluation of the company’s operations  
  • Consumer practices, which is evaluating whether or not the company is educating its customers about sustainable practices, and whether any new products are being made from recycled materials.  

Sustainability and DEI: Connecting the dots

At first glance, sustainability and Diversity, Equity, and Inclusion (DEI) may not seem intertwined.

The reality is that sustainability extends beyond just being environmentally responsible. Sustainability also refers to overall social impacts and human rights; therefore, companies must connect the dots between sustainability and DEI.

As outlined by Bradfield Group MENA, a provider of human resources services, the two intertwine in the following ways:

  • Leaders need to communicate with people from different backgrounds effectively and at different levels — internally and externally to improve a company’s environmental footprint.
  • Diversity helps form better policies and strategies to support society and the environment. 
  • Companies must include all the stakeholders and generate processes that make every individual feel heard and supported to successfully integrate sustainability into a business strategy.  

The future of sustainability

Sustainability and sustainability reporting is here to stay. And as more and more companies embrace a sustainability strategy, the need to evaluate progress and performance through a sustainability audit will become increasingly critical.  

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