Sustainability

Sustainability measurement as an opportunity - focus on ESG standards

10.5.21

Sustainability is booming like never before. Ignoring this important issue is now no longer an option for most companies. Particularly, since the European Commission published a draft for revised guidelines for corporate sustainability reporting in April, representing an enormous challenge for many companies.

Challenge sustainability reporting

Recently, we have been receiving an increasing number of enquiries from companies that are intensively dealing with the topic of sustainability and are looking for innovative methods in the areas of strategy, assessment and measurement of sustainability. Many companies are, above all, overwhelmed by the increasing requirements of sustainability reporting. Innovative methods are required to ensure a viable sustainability strategy, and measurement as well as reporting possibilities. In this article we give a brief overview of the topic of sustainability measurement and reporting and we explain how we develop solutions together with our clients.
Reading time: approx. 10 minutes

Increasing requirements for sustainability reporting


SDGs (Social Development Goals) are familiar to most people who have been dealing with the topic of sustainability for some time. In 2016, the United Nations (UN) defined 17 Sustainable Development Goals (SDGs) to ensure sustainable improvements at an economic, social, and environmental level.  


These development goals are not a legal requirement, but more and more companies are voluntarily committing to contribute to a more sustainable world. There are sustainability reporting standards that organisations may follow. They help them to be transparent and take responsibility for their impacts. The GRI (Global Reporting Initiative) standards are currently the most widely used sustainability reporting standards in the world.


However, sustainability reporting is mandatory for companies that meet certain criteria. And the EU is continuously increasing its requirements. In the EU, companies of public interest that are also large corporations and employ more than 500 people, are already obliged to adhere to so-called non-financial reporting (NFRD) since 2017. This type of company includes, for example, credit institutions and insurance companies. In 2021 and in the subsequent years, the requirements are expected to increase, especially regarding the scope, form of digital provision, external audit of the non-financial reporting, and the expansion of the group of those obliged to report. On 21 April 2021, a draft of the revised Corporate Sustainability Reporting Directive (CSRD) was published by the European Commission. With these new guidelines, the number of companies that have to report on non-financial aspects in the future would be greatly expanded. So far, companies with more than 250 employees will soon be obliged to report. In addition, large non-capital-market-oriented companies, as well as all companies listed on a regulated market in the EU, with the exception of micro-enterprises. There will be new binding standards for sustainability reporting. It has to be included in the company's management report in the future and will thus be raised to the same level of importance as financial reporting. An external audit is also planned for the mandatory reporting. The European Commission's proposal is expected to be adopted in 2022 and the reporting obligation will apply to reports published from January 1st 2024 on.


While sustainability has been an integral part of everyday business for many corporations for years and their reports are being published regularly, sustainability reporting is a major challenge for many SMEs. This is because sustainability is an extensive topic and the sustainability profile of a company is usually as unique as the company itself.



How can sustainability be measured?


One commonly encountered problem is the lack of a standardized assessment method that covers all organisations and is accessible for everyone. There is not one single metric for measuring sustainability. Some companies take advantage of that and engage in so-called "greenwashing". It means that they try to create a green, sustainable image for themselves through marketing & PR measures, however, their actions speak a completely different language.

A term that one has recently come across more frequently in the field of investment is ESG, which stands for Environmental Social Governance - three central criteria when it comes to measuring sustainability.


The "E" stands for "Environment" and refers to the responsibility that companies bear for nature and fellow human beings. Companies can expect a good rating in this area if, for example, they pay attention to the lowest possible CO2 emissions, deal responsibly with limited resources and water or are committed to the protection of biodiversity.  


The "S" stands for "Social" and thus for the social responsibility of the company. This refers to criteria such as the treatment of employees, their health, occupational health and safety and the observance of human rights, but also demographic change or responsible handling of food.


The "G" stands for "Governance", which refers to sustainable corporate management. Here, for example, attention is paid to how the management level is composed, how companies deal with bribery and corruption, how transparency and the obligation to provide information to shareholders are handled, and how the issue of compliance is dealt with. Risk and reputation management also play a role.



Source: Own illustration based on Schindler: Nachhaltige Kapitalanlagen – Chancen nachhaltig nutzen, Frankfurt am Main, 2018, S.20.


The guidelines for corporate sustainability reporting, provided by the European Commission, will contribute to a uniform measurement and assessment possibility. The binding standards for sustainability reporting, which are currently being developed, are to include the following aspects:

ENVIRONMENTAL ASPECTS:

○ Mitigation of climate change

○ Adaptation to climate change

○ Water and marine resources

○ Resource use and circular economy

○ Pollution

○ Biodiversity and ecosystems

SOCIAL ASPECTS:

○ Equal opportunities for all, including gender equality and equal pay for equal work, training and skills development, employment, and inclusion of people with disabilities

○ Working conditions, including secure and adaptable employment, wages, social dialogue, collective bargaining and worker involvement, work-life balance and a healthy and safe working environment

○ Respect for human rights, fundamental freedom, democratic principles and standards

CORPORATE GOVERNANCE ASPECTS:

○ The role of the company's administrative, management and supervisory bodies, including related sustainability issues, and their composition

○ Business ethics and corporate culture, including anti-corruption and anti-bribery issues

○ The company's political engagement, including its lobbying activities

○ The management and quality of relationships with business partners, including payment practices

○ The company's internal control and risk management systems, including related reporting processes



Burden or opportunity – What is the benefit for the companies?


Now, it may seem that these numerous sustainability targets and criteria as well as the reporting obligations put unnecessary pressure on companies and bring more work than benefit - especially for non-listed companies. This may be true for some, but the companies that really care about sustainability should see it more as an opportunity. A uniform, transparent sustainability rating offers companies the chance to positively influence their own image and to act as role models and pioneers of sustainability, such as Sony, Philips, or Cisco Systems. According to the Wall Street Journal, they are ranked places 1-3 of the most sustainably managed corporations worldwide in 2020. In this case, the respective guidelines, initiatives, and actual performance of the companies on the topics of environment, employees and workplace, social capital as well as business models and innovation were evaluated, with the data coming either from the companies themselves or from over 8000 different media sources.


Another advantage of sustainability ratings that are accessible to everyone could be that it could make it easier for companies to make decisions when choosing partners and suppliers, as their rankings also affect their own ones.


The great interest of consumers in sustainability shows that ESGs will be relevant for all companies in the future, and not only for the listed ones. While the possibilities of sustainability rating for institutional investors increase, it will still take some time for private individuals until sustainability rating becomes a transparent process for them. In Austria, for example, the digital rating platform mitwirken.at, which aims to enable everyone to identify and rate the sustainability of all Austrian companies, is currently being developed.


We are very excited to see how this topic will develop in the coming months and years. We are currently working on a wide range of relevant sustainability topics with various clients to contribute our part to a more sustainable world.

V_labs green

Sustainability, climate, and environment have already very long been close to our hearts. With our startup ETHUS, the leading platform for energy efficiency in Austria, we have been active in the energy sector for over 6 years. We fully support over 100 companies in fulfilling their obligations under the Energy Efficiency Act and conduct energy audits in the areas of buildings, processes, and transport.

With our service "V_labs green" we aim to help our clients contribute to a better world through their business. We provide support in the areas of strategy, assessment and measurement of sustainability as well as in communication. Innovative methods are required to develop a promising sustainability strategy as well as suitable measurement and reporting options. Our used methods in company building projects and innovation work are ideal for taking the first step.


Company needs new orientation in the field of sustainability:

SUSTAINABILITY STRATEGY DEVELOPMENT

In many cases, companies have already implemented individual sustainability initiatives, but there is no clear sustainability strategy. We always start by formulating a sustainability mission statement. We evaluate questions such as where the company currently stands in terms of sustainability, who the most relevant stakeholders are, what the motivation is for implementing sustainability measures, and where the company's own strengths and weaknesses lie. The results of an analysis of the environment, the company, and the stakeholder are summarised in a materiality matrix. Methods used in this phase include SWOT analyses, materiality analyses and stakeholder maps. The aim of this first phase is to know the existing potential for sustainability as well as internal and external requirements, to have a defined vision and mission as well as a common understanding within the project team.

The next step is to define which fields of action fit the company, and which goals and metrics are to be pursued, building on the company's goals. It is analysed what potential the company offers, which trends are likely to have an influence on the company's business areas, and how customer needs are developing regarding sustainability. Trend analyses and interviews are the main tools used here. The goal is to develop a framework and a roadmap for the implementation of the company's new sustainability strategy.


Company wants to make its business model more sustainable:

SUSTAINABLE BUSINESS MODELS

If a strategy is already in place and sustainability initiatives are partially implemented, however, industry trends are unknown or there is uncertainty about regulations, our Sustainable Business Model Strategies module comes into play. Here, we analyse the business model, look at trends in the industry, and try to find out how sustainability and its principles can be applied to it. We conduct a potential analysis of the current business model and develop potential directions for sustainability and an Ecodesign Sprint Roadmap. We do this within a few working days. This analysis forms the basis for further steps towards sustainability.

The company has a concrete idea or a concrete problem:

ECODESIGN SPRINT

If a concrete problem area was already identified and initial ideas and approaches are available, we start an Ecodesign Sprint, in which the problem or customer needs are specified and a fitting solution is developed. It does not matter whether it is a product, a service, or, for instance, the desire for a reorientation of marketing towards sustainability.

In an Ecodesign Sprint, we develop a solution together with our clients within just 4 days. On the first day, the focus is on team building and getting to know the assignment. The aim is to develop a common understanding within the project team. We like to use the "How Might We" method here. On the second day, ideas are sketched, solutions are developed, and decisions are made, for example by using user journey maps, story boards or the Crazy 8 method. On day 3, a prototype is developed and a guideline for interviews with (potential) customers is designed, which is then used on day 4. The final day focuses on testing and validation. Time flies and you already have a practicable solution after 4 exciting days of work.


P.S.: If sustainability is also on your mind, we would be happy to support you as a partner in this area. Pascal Grosskopff is innovation consultant and V_labs partner and he is an absolute expert when it comes to sustainability thanks to his studies in Environmental & Bioresource Management at BOKU Vienna and Energy & Environment at Lancaster University. He is also a certified energy auditor according to the Energy Efficiency Act. Pascal would be happy to take care of your concerns together with specialists from other fields within the V_labs team.    

We look forward to your enquiries and to uncover the potential of sustainability together. Because we see sustainability as an opportunity for the future!

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About v_labs

We support our customers in innovation projects - as a company builder or with various innovation services (consulting, coaching, rapid prototyping, IT development). The 17 employees have many years of experience in strategy, online marketing, service design, agile project management and UX design.
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