Voluntary reporting has played a pivotal role in the field of corporate sustainability. Yet, despite this deep connection, many in our field are wondering if required disclosure regulations are now making voluntary reporting obsolete.
Voluntary reporting formed the bedrock of defining corporate sustainability programs from the start. As more companies began to embrace sustainability, the development of a collection of voluntary frameworks fueled its growth. They added rigor, improved comparability of disclosures, and bettered alignment with stakeholder expectations. In many ways, the swell of new disclosure regulations and compliance regimes is a culmination of voluntary reporting efforts.
A victim of its own success?
Thanks to voluntary disclosures, sustainability and environmental, social, and governance (ESG) strategies, data, commitments, and programs now matter enough for regulators to care. It’s also evident that the pillars of voluntary reporting – like the Global Reporting Initiative (GRI), the Sustainability Standards Accounting Board (SASB), and the Taskforce on Climate-related Financial Disclosures (TCFD) – have become the foundations of compliance requirements around the globe.
However, companies across industries that have long been committed to voluntary reporting – and have seen its benefits as an instrument of commitment and for storytelling – are now reconsidering the value of their voluntary efforts. As they prepare to meet growing ESG and climate disclosure demands, many clients I work with are asking critical questions.
Is voluntary reporting still worth it with so much focus on regulation? If it is legally required to disclose material matters, are there additional “less-than-completely” material topics that still warrant disclosure? What should we do with our voluntary report between now and our first mandatory disclosure, and what should we do after that?
Regulation overload
These questions – and how they get answered – are particularly salient in an environment where corporate sustainability teams are overburdened by the existing and forthcoming disclosure regulations they are expected to address. Unless we can demonstrate the value of voluntary reporting to these resource-strapped teams, we risk compliance-first becoming compliance-only.
I believe voluntary reporting is far from obsolete, nor do I think it will be in the near future. Regulatory compliance and high-quality sustainability reporting are not the same; the latter is fueled by a company’s own determination of what matters. When working on the adoption of voluntary frameworks, I’ve seen many companies select and prioritize highly relevant material sustainability topics that weren’t covered by GRI or SASB but mattered deeply to stakeholders. Companies that conflate the value of voluntary reporting and compliance obligations will lose a vital asset for advancing sustainability progress within their company and communicating it effectively with stakeholders. Let’s dig into that value a bit further.
Instrument of commitment
The value of voluntary reporting rests on two pillars. The first one is its role as an “instrument of commitment.” To advance corporate sustainability, a company must set a strategy that will drive progress and translate it into concrete actions. Voluntary reporting helps managers set strategic goals and pushes them to deliver operational results since audiences expect updates on progress.
In the sustainability field, in particular, the interdependency between strategy and public articulation of goals has been a driving force for action. It trickles down into organizational decision-making and the implementation of policies and programs that advance progress. The pressure to have something to “say” about sustainability is why many companies figure out what to “do.” Additionally, the connection between strategy and voluntary reporting presents a way for companies to identify and capture opportunities and drive benefits.
I have seen this dynamic play out time and again: companies feel pressure from stakeholders to publish a sustainability report and then realize what strategic sustainability investments must happen first to create a defensible public narrative. However, the emergence of mandatory disclosures puts these beneficial effects under pressure. Focus on compliance efforts may lead to a narrowed view, where companies see sustainability and ESG disclosures as risk mitigation rather than value creation.
The power of stories
Communicating with stakeholders through compelling storytelling is the second pillar. To capture this potential, voluntary reporting needs to weave relevant and decision-critical information into a transparent and credible narrative. Companies should not limit themselves to the story they want to tell – the one that makes them look good – but embrace the story they have to tell – one that covers all topics of importance to stakeholders and shows progress and setbacks.
If done right, consistent and well-crafted voluntary reporting serves as a springboard for broader communication of corporate sustainability commitments and accelerating operational action. The ongoing effort of gathering information and fitting actions into the overall strategic narrative creates a platform for sharing sustainability performance and challenges in a compelling and readable way. In other words, a voluntary report can serve as a “content hub” that communications teams can pull from for months to communicate with various stakeholders via social media, conference presentations, byline articles, email marketing and more.
Missing the point
A purely compliance-only approach will fall short of capturing this value since companies will only disclose what regulators think is relevant and decision-critical information. Compared to voluntary reporting, it will likely underserve certain stakeholders since voluntary reporting can be much more responsive to particular stakeholder needs.
Take Form 10-K, for example; the mandatory public SEC filing that U.S. companies must submit annually. These disclosures are mainly driven by legal considerations and often don’t go far enough to address the concerns of vested stakeholders. Companies copy and paste most content year after year, threatening the voluntary reporting practice of highlighting progress and evolution annually. 10-Ks and regulatory disclosures like it are also simply unengaging and unfit for communication to various audiences through different content channels.
Side by side
However, the fact that voluntary reporting can still help to drive and create value doesn’t mean it shouldn’t evolve in this era of rising sustainability compliance. In a way, the compliance era provides an excellent opportunity for reinvention since it may relieve voluntary reporting of certain obligations. Instead, voluntary reporting can now focus on complementing compliance-driven disclosures and explore the priorities that matter most to the company’s business model, its impacts, and its stakeholders.
