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New research shows a surge in reporting policies. What does it mean for business and the future of reporting?
01 June 2016

As the sustainability reporting process becomes ever more integral to global action on environmental and social problems, so too do the policies, regulations, standards and other instruments that require or encourage organizations to report.

GRI, the United Nations Environment Programme (UNEP), KPMG International, and The Centre for Corporate Governance in Africa, released the 4th edition of Carrots & Sticks during the 5th GRI Global Conference last month, painting the most comprehensive picture of the global sustainability regulatory landscape. A dedicated conference session was also held to discuss the findings of the research.

Surge in reporting policies over the years
In the past three years alone, the number of sustainability reporting instruments around the world has more than doubled. The 4th edition of Carrots & Sticks looked at 71 countries and identified 64 countries with policies in place, and a total of almost 400 policies. The increase in policies has been driven largely by strong growth in Europe, Asia Pacific and Latin America. The key policy actor among emerging markets was found to be stock exchanges. In developed markets, the push came largely from governments. In total, the research identified 223 government-issued sustainability reporting instruments around the world, while over100 were issued by stock exchanges and financial regulators. Of all the reporting instruments, 65% were mandatory and 35% voluntary, with one in ten utilizing a ‘comply or explain’ approach.

Challenges for organizations
The surge in reporting policies shows increased commitments and efforts to achieve transparency and accountability, but at the same time, the large number and variety of instruments can pose challenges for reporting organizations. Alignment and policy harmonization must be a key goal for governments, market regulators, stock exchanges, industry associations, standard setters and all those responsible for developing reporting instruments.
 
During the conference session, Cornis van der Lugt, Sustainability Consultant & Researcher at Stellenbosch University Business School, South Africa, discussed the growing confusion over integrated, sustainability and financial reports and called on the need for better coordination and alignment within governments in order to effectively roll out policies. Cornis van der Lugt also spoke of the growing unease among companies that new layers are being added to policies without old ones being revised.

Wim Bartels, Global Head of Sustainability Reporting & Assurance, KPMG, Netherlands, seconded the notion that reporting can become difficult for companies operating in multiple countries, and there is a need for “harmonization on an international level, and also a need for minimization – not being too prescriptive and leaving adequate room for reporters.”

Wim Bartels predicts that annual reports will address value in a wider context in the future: “Value is not only about money. The world is more than money. Companies understand if they do a good job regarding labor rights, for example, it will have a financial implication, but more importantly it will increase the wider value of the company.”
 
The future of reporting policies
The findings in the 4th edition of Carrots & Sticks reflect a commendable effort by governments, regulators, stock exchanges and others to implement sustainability reporting policies through regulation, guidance and other instruments. However, the publication also paints a picture of a rapidly growing, increasingly complex and fragmented landscape of reporting instruments. Some duplication and overlap is inevitable, and while the trend is in the right direction, an important next step is for the bodies that issue reporting instruments to focus on coordination and harmonization. That will require increased levels of collaboration and joint commitments between these bodies. Greater collaboration between reporting organizations would also benefit the process.

Carrots & Sticks also illustrates how public opinion can drive the reporting and regulatory agenda. Human rights and corporate tax are just two examples of topics that have recently influenced the global political agenda as a result of stronger public consciousness of these issues. At the same time as pressure grows for companies to be more transparent on a wide range of issues, there are also calls for reporting to prioritize and focus on the topics that are most relevant and material to the creation of long-term value both for businesses and their shareholders, and for society as a whole. Reporters and regulators will need to find a way to strike the right balance between what could be perceived as competing calls for comprehensiveness and focus.

Take a look at the new extensive online database for Carrots & Sticks which provides information on policy instruments in 64 countries around the world, and download the full publication here.