Sustainability Reporting: Necessary, but not Sufficient

The backlash era is affecting multiple aspects of the just and sustainable business agenda, including our ability to pursue climate strategies, conduct human rights due diligence, and address bias and discrimination. Sustainability reporting is feeling the heat too, but with additional criticism from within the field that disclosure diverts attention and resources away from more important goals.

I have written in the past about how the current form of sustainability reporting — especially overly complex reporting standards, a lack of clarity about who the reports are for, and the pressure for each year’s report to feel different — supports this perspective. The critique of reporting as it exists today is compelling, but it doesn’t answer the question of what form of sustainability reporting we want to see or set an agenda for where we go from here. I assume opaque corporate secrecy doesn’t feature in anyone’s preferred theory of change.

Over the past two years, I have become immersed in the reporting state of play, from financial to sustainability, mandatory and voluntary, mainstream and specialized. I have had the opportunity to explore the quality and quantity of company disclosure for both AI-related and child rights-related impacts, risks, and opportunities. In both cases, I have focused on how companies have integrated these two focus areas (i.e., AI and child rights) into existing mainstream financial and sustainability reports, rather than creating a whole new category of disclosure. Both focus on hot topics of the moment, with significant society-wide interest in company policies, strategy, and performance.

As a result, I have now read hundreds of SEC filings and sustainability reports, engaged with both the authors and readers of these reports, and reflected on how disclosure supports broader societal goals. I thought it would be useful to reflect on the insights I have gained and what this might indicate about the future of reporting.

• Regulated reports that follow a standardized form and structure are more useful than “free-form” voluntary sustainability reports. When reading SEC filings and reports using the European Sustainability Reporting Standards (ESRS), I knew exactly where to find the information I was looking for, immediately understood its significance, and could compare it directly with other companies. I knew the company had scrutinized every word, giving the information robust meaning and significance; it wasn’t disclosure at the whim of the public relations team. By comparison, the voluntary sustainability reports were often an unstructured mix of stories, anecdotes, and updates of unclear significance and ambiguous meaning. Regulated reports deal with a serious, high-stakes question (“what information is material”), not a frivolous, temporary one (“what story provides the best narrative this year”).
• Social impacts are of material interest to investors and should be treated accordingly. The topics I have focused on are clearly relevant to investors, whether as liability (e.g., AI and discrimination claims or safety risks), market size (e.g., limiting children’s access to technology), or cost (e.g., achieving regulatory compliance). This is prompting discussions within companies about the relationship between business models, corporate strategy, and social impacts. However, it is also essential for capital allocation that investors have access to high-quality information about how companies in their portfolios—individually and collectively—identify and address these risks. Investor decision-making cannot create change if investors lack the information needed to play this role.
• Improved policymaking by government requires better information from companies. Both responsible AI and child rights online suffer from unsatisfactory government policymaking and ad hoc regulatory enforcement. There are many reasons for this, and the lack of robust sustainability reporting is far from the top of the list. However, I’d argue that a proactive communications strategy, based on a thoughtful, systematic, and transparent explanation of the relationship between technology, social impact, and business success, can only increase the likelihood of improved decision-making by governments and regulators. Companies cannot complain that government action is badly informed if they are the very entities restricting the flow of high-quality analysis.
• Different report audiences have different information needs, and this patchwork requires greater coherence. In the field of responsible AI, investors, enterprise customers, insurers, regulators, and safety researchers all have different priorities and information needs; a similar dynamic is found in child rights online, with children, policymakers, regulators, investors, child rights advocates, educators, and parents all having an important stake. The challenge of having multiple target audiences has long complicated sustainability reporting, and in the technology industry this has been compounded by a culture of creating new forms of transparency and information taxonomies, rather than using what already exists. A table published in AI Transparency Starts With the Audience outlines several different reports and the audiences who find them useful for decision-making. Though simple, this table has been surprisingly clarifying for a field of contrasting professions with distinct areas of expertise and differential understanding of reporting.
• Risks of under-disclosure are in battle with risks of over-disclosure. Historically, companies understandably feared disclosing too much—that being candid about shortcomings and transparent about risks would damage reputation and increase liability exposure. New regulations in the EU and elsewhere are beginning to turn this calculus on its head, as companies become increasingly aware of the risks of incorrect or incomplete disclosure. The implementation of the EU Digital Services Act is early evidence of this shift, though it remains to be seen how this evolves over time.

The availability of decision-useful information is only one of the many system-level challenges and priorities for the field of just and sustainable business. I have always viewed reporting as a “necessary, but not sufficient” feature of the world we want to see; a virtue in its own right and a formal discipline that should serve other priorities, not constrain them. However, just as it would be a mistake to prioritize disclosure over programmatic priorities, so it would also be a mistake not to shape reporting for maximum effectiveness. 

We all have a preferred position on the playing field when trying to win, and formal sustainability reporting just happens to be one of mine. I played fullback on my high school soccer team, breaking up attacks and helping my team move forward, but rarely scoring goals. Perhaps reporting is the fullback of the just and sustainable business team.