One common pitfall in implementing sustainability is organisations selecting performance measures that are misaligned with their business growth strategy.
Taking this approach leads to severe consequences, such as keeping sustainability on a separate parallel track from the actual business, and encouraging dual reporting, in which sustainability information is prepared solely for compliance and fails to address business information needs required to monitor progress against targets for business growth.
Organisations have numerous stakeholders with different expectations and information needs.
Therefore, it is imperative to distinguish between material sustainability issues and other matters that are related to compliance and information requests. Failure by organisations to make this distinction usually indicates a shallow understanding of sustainability and its role in the broader business context.
The reason for focusing on material issues is to identify the subset of non-financial matters that could impact the organisation's short, medium, and long-term success. These material issues need to be considered as the organisation executes its strategy. The other sets of information that are not material but required for compliance or to meet stakeholder expectations need to be provided separately.
This is why, unlike other sustainability reporting standards, the IFRS sustainability disclosure standards are investor-focused and aim to provide investors with the relevant, decision-useful information about the organisation’s financial prospects.
Therefore, the handful of KPIs (key performance indicators) used to track these material investor-focused topics or issues will equally be of interest to the board and management of organisations. Organisations should ensure that their sustainability materiality process involves all critical stakeholders, including the strategy team.
The involvement of these stakeholders in the materiality process will further enrich the outcome, ensuring alignment and distinguishing between KPIs and other performance objectives that are not key but essential to meet other stakeholders’ information demands.
The benefits that accrue to organisations that are deliberate in this process range from a focused approach to value creation to the efficient use of resources and clarity on the sustainability reporting approach.
Organisations can choose to incorporate this investor-focused, strategy-aligned set of sustainability information, which also complies with the IFRS sustainability disclosure standards, into their general financial report, while using a separate sustainability report to meet other stakeholder information needs.
Akinyemi Awodumila is a Partner at PwC Kenya. He is an author who writes and speaks widely on corporate reporting topics
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