The four lenses of governance, strategy, risk management, and metrics and targets
We recognise that the sustainability landscape is confusing, with many standards and frameworks options when providing a focus for your organisation. There needs to be greater cooperation and alignment across the existing frameworks and standards, and eventually a move towards a generally accepted set of international standards of sustainability and non-financial reporting.
In 2014, the Corporate Reporting Dialogue (CRP) was established. Its purpose is, ‘to strengthen cooperation, coordination and alignment between key standards setters and framework developers that have a significant international influence on the corporate reporting landscape.’13 The CRD published the report Driving Alignment in Climate-related Reporting in September 2019 that demonstrated high levels of alignment between frameworks when mapped against the TCFD recommendations.14
As noted above, the TCFD framework was identified as providing a valuable framework for evaluating and reporting climate-related risks. If you take out the specific climate references from their recommendations, it still provides a broad framework for working with any of the core elements of sustainability, whether environmental protection, social inclusion or governance.
When thinking about business resilience and sustainability, a great place to start is the four lenses of governance, strategy, risk management, and metrics and targets.
What is the organisation’s governance around the sustainability risks and opportunities?
What are the actual and potential effects of sustainability risks and opportunities on the organisation’s business model, strategy and financial planning?
How does the organisation identify assess and manage sustainability risks?
How are metrics and targets used to assess and manage sustainability risks and opportunities?
At Davos in 2020, the big four accounting firms (Deloitte, EY, KPMG and PwC), in collaboration with the World Economic Forum (WEF), launched a proposal outlining a set of common environmental, social and governance metrics for mainstream annual reporting.15 The draft white paper, Towards Common Metrics and Consistent Reporting of Sustainable Value Creation, has been followed with a consultation period. It is seen as a drive to find a way for a global systemic solution for mainstream non-financial reporting. Drawn from existing standards and frameworks, the draft consultation proposes a set of 22 core reporting metrics and 34 expanded metrics across four pillars of principles of governance, planet, people and prosperity.
At this point, it is important to stress that sustainability is not purely a reporting and assurance endgame. Generic sustainability metrics should not be at the expense of genuine organisational insight. There needs to be a balance; remember resilient sustainable organisations are not built on metrics alone. Jerry Muller in his book Tyranny of Metrics points out:
Trying to force people to conform their work to preestablished numerical goals tends to stifle innovation and creativity — valuable qualities in most settings. And it almost inevitably leads to a valuation of short-term goals over long-term purpose.16
Finance professionals must take a holistic view and ensure sustainability is embedded into strategy and becomes a business process across the entire organisation.
