S4 E7: Measuring Quality in Sustainability Reporting with Ariane Hofstetter

Adrian McIntyre: 00:00

From the Public Relations Global Network, this is PRGN Presents. I'm Adrian McIntyre.

Abbie Fink: 00:07

And I'm Abbie Fink, president of HMA Public Relations in Phoenix, Arizona and a founding member of PRGN. With public relations leaders embedded into the fabric of the communities we serve, clients hire our agencies for the local knowledge, expertise, and connections in markets spanning six continents across the world.

Adrian McIntyre: 00:28

Our guests on this biweekly podcast series are all members of the Public Relations Global Network. They discuss such topics as the importance of sustainability and Environmental, Social, and Governance programs, crisis communications, content marketing, reputation management, and outside of the box thinking for growing your business.

Abbie Fink: 00:48

For more information about PRGN and our members, please visit prgn.com. And now, let's meet our guest for this episode.

Ariane Hofstetter: 00:59

Hi, my name is Ariane Hofstetter. I'm a sustainability expert with a focus on sustainability reporting. As a co-founder of the Global ESG Monitor, I've worked on the development of the Global ESG Monitor methodology, what we use to evaluate quality in sustainability reporting. In addition to my role at the Global ESG Monitor, I'm also Managing Director of a market research institute and a board member of comitas AG. This position gives me the possibility to apply what I learn in research to practical advice for companies improving their sustainability practices.

Abbie Fink: 01:46

There have been numerous conversations over the years about sustainability, the importance of sustainability, why businesses and organizations need to consider it, why consumers need to pay attention to the businesses that we are interacting with when it comes to that, and how we find out about those things are through this reporting process. Can you talk a little bit about what sustainable reporting is and what goes into creating a good report? And what should we be thinking about if we are going to start to consider entering into this more robust program for the organizations that we're representing?

Ariane Hofstetter: 02:35

Well, the sustainability report is an official document. It's not a marketing brochure or anything like this. And it's obligable for big companies to publish a sustainability report. report. Some of them think about this as a formal necessity, but it's more than this. It's a tool which allows them to track their efforts, to inform their stakeholders about their progresses and lay down their strategies, showing that they do not only consider those financial risks, but also non-financial risks—which can have a big impact on financials too, although we call them non-financial. Imagine if you have a reputation risk. You do something, claim for example that you are super carbon neutral or friendly and then it comes out that you do not fulfill the standards and then you would have a reputation risk and this would or could cost a lot of money. Therefore non-financial risks are really important to be monitored by the companies and that's happened in the reports.

Abbie Fink: 03:53

So a report is not necessarily the physical, as you said, it's not a marketing brochure, it's not the pretty document that is produced. It's really the analysis and looking deep within an organization about their business practices as it relates to sustainability and all of what that entails. So when we think about a quality report, again, it's not the physicalness of the report, but really what the content is, the methodology that came to the information that's there. So what do we need to know and understand about what makes a quality report? What are you looking at that would identify something that gets to the standard of being a quality reporting document?

Ariane Hofstetter: 04:47

Well, a good sustainability report is characterized by various features. The first and foremost is transparency. So if you look at, for example, regulations which form rules for how companies have to report, you come across this term transparency. The big question is, what is transparency? So to make it measurable, we have broken it down to measurable dimensions. And we say that's comparability of data—not only comparability with other companies, but also with the progress you have made during the years. It's accuracy, timely publication, reliability, relevance, and also accessibility of the information, because those reports are made for stakeholders and stakeholders come from different areas in the world. They can be your customers, they can be your investors, they can be NGOs, press, and they have different capabilities. And we need to make sure that those reports are also barrier-free, meaning that everybody can access the information they need to make a decision on whether, how, and to what extent they want to interact with a company.

Abbie Fink: 06:08

Is it important? Does a business have to, in order to have what you would define in your words as that quality report, that's an awful lot of characteristics to measure. And that, to me, sort of equates to a large business, a multinational company. But does this translate to smaller, maybe more local or regionalized, companies as well? This doesn't have to necessarily be big business, right? Any business can consider a sustainability report?

Ariane Hofstetter: 06:44

Sure. Most of them have to due to value chain effects. So if a big company needs to provide some data, they need to do it not only for their own operations, but also along their value chain. So they have to ask their suppliers and mostly those suppliers are smaller companies. And so they need to be ready to provide this kind of data. And a second feature we say makes a good sustainability report is to have a materiality assessment. A materiality assessment helps companies to define those topics where they have either impact or financial interests, meaning you have to make sure that your business model is not only causing bad impacts or doing good impacts and that you manage those but also to reflect on whether, that's what I was saying earlier, those non-financial risks. And that's the financial side of this material topic evaluation.

And if you do a good materiality assessment, you have a clear picture of what kind of data you need to provide and what kind of information you have to communicate. Without that, sustainability is very complex. It can be overwhelming, due to also interdependencies which are between those different topics. And to have a clear picture, we really recommend companies to do this material assessment. That helps.

Abbie Fink: 08:20

So even if you are not necessarily going to file or create a sustainability report as in these large companies and such, for smaller businesses that are doing work with or hope to do work with larger organizations, it's important to be able to respond and have those answers as well. And I'm starting to see a little bit more of that in the organizations that we're talking to from a new business perspective, that they're starting to ask those types of questions now. What is your company's policy about X, Y, and Z? And many of those are those things that you've mentioned. So you have a Global ESG Monitor that you have introduced and use that to assess the quality and such. Talk a little bit about that report and or that monitor and what businesses are, you know, considering and the challenges that might be faced if they enter into this more robust plan to participate in a full-on monitoring program.

Ariane Hofstetter: 09:35

We have founded the Global ESG Monitor in 2019. And in the beginning, it was a project to help us to find out what is quality in sustainability reporting. So we started to think about it, evaluating different sources who define quality in reporting, putting together our methodology. And since we first started, we have evaluated over 1,300 reports by 470 companies all over the world. And we have focused on the big companies, so the companies from leading indices from different countries, because those are the most experienced reporters, and their way of reporting can build benchmarks for those who only start their reporting practices. So, companies who are under pressure today, being smaller, being in the position to need to report due to supply chain effects or other effects that cause this need, they have the chance to learn from those who have started already back then. In Germany, it was 2017 when it became a necessity to publish such kind of a report.

Abbie Fink: 10:50

And what are you seeing are the challenges that companies are facing when they want to begin this process?

Ariane Hofstetter: 10:59

I think one big challenge is, as I said, to understand what is material. Sustainability seems very complex. And if you start to work with it, you have many topics such as climate, pollution, water. You have your own workforce, you have workers in the value chain, maybe you have affected communities, you have your consumers or clients which could be affected by what you're doing. So many different topics and you have to decide what is really of relevance for you. So the first challenge is to be brave to leave out information and not to try to please everybody with an information need. And that begins by defining your stakeholders, who is important for you, who can be affected by your business model, which you should also anticipate, or who has an influence on you. Those are the different perspectives you put on stakeholders and which differ the stakeholder from your target group, for example, which you apply in marketing. So that's the first step to understand what you are doing this for. And then you know what kind of context you need to give you to your data. So for example, your investor asks different context when it comes to training of your workforce than maybe an NGO would ask you.

Or let's say we talk about diversity, so your workforce has different needs talking about diversity and equal opportunities than maybe some stakeholder outside your company. So it's really important who are your stakeholders and what kind of information needs do they have, what kind of context you need to provide for your data. The second step is then to do this materiality assessment, which we already have talked about. And during this process, you also involve your stakeholders, not only being those who are affected or who have an influence on you, but also those who can help you with their expertise. So let's say you're trying to tackle climate change.

Most of the companies do not have the expertise inside to, let's say, form a resilience plan or a transition plan for their carbon neutrality journey. And therefore, it's important to understand what kind of experts you need in this progress. So that's the third challenge companies have to overcome. And then it's compiling the data. And if companies do not have clear responsibilities in their team, that can be really tedious for those people involved, because our experience is that nobody really wants to supply the data. Most of the people have a very romantic view on sustainability when we talk about it in general. And then when it comes to break this down into data, it becomes tedious. They don't want it. So you have to have clear responsibilities to collect the data and to be able to publish it at a certain point in time.

Abbie Fink: 14:20

So I want to … that sounds very time-consuming, and it feels very overwhelming if you are first starting out or you've got it in your head that this is important for our company to engage in this process. What is the timing of doing these types of things? How much time should someone allocate? What kind of resources and access do you need when you're working with a company to get the appropriate data? And then part two, assuming that we're not perfect the first go round, right? We're going to uncover things we need to do better—or that we're not doing at all and we need to start doing—what happens after you have done these assessments? And what do we do with this report and the data that we've gathered to move forward with the organizations?

Ariane Hofstetter: 15:22

So if you have not reported yet, it's important to start and not try to strive for the perfect report. Just try to start at some point and provide information, provide data. What we do with our Global ESG Monitor is then to show you gaps you might have in your reporting. And we can do this in different ways. So we can show you how good the quality of your report is by applying our methodology and showing you where you come short in terms of our methodology and the quality dimensions we have formulated and made transparent.

The second perspective you can take is to check if you comply with regulation. In Europe, everybody is talking about CSRD and ESRS. CSRD is forming the framework of saying who has to report and how reporting should be. And the way the details of reporting the standards are set out in the European Sustainability Reporting Standards (ESRS). So what we provide for European companies at the moment is so-called ESRS Readiness Reports, showing them how good they comply to what is coming with this new regulation, showing them the gaps and combining this with a feasibility assessment, as well with showing them what is really mandatory and what is voluntary. Because not everything in the ESRS is voluntary. There are some aspects in there which are de facto recommendations. So they're in there, but it's up to the company to follow those or not. So that's the second perspective.

And the third perspective, what you can do is try to identify who are the shining examples to follow, to learn from by doing, for example, a peer group analysis, a best-in-class analysis comparing your report to a peer group and try to see who in this peer group might serve as a role model can give you good ideas in areas where you have shortcomings to learn.

Abbie Fink: 17:39

So really, it is understanding the importance of what this is, and this is going to be common business practice. We all are going to have to evaluate—whether we are reporting it in a large global context or whether we are simply making it a statement as part of our business practices—that we do these things. It's important to get started and work your way through. So thinking about where are some maybe easy points of access to begin this process? What are some things that businesses can start to think about doing so that they will be ready to embark on this sustainability reporting process?

Ariane Hofstetter: 18:33

Well, as I said before, it's to think about the areas of sustainability that could be important for you. If you are in a country where you have a big socio-demographic change and shortcomings in qualified workforce, you need to think on how to gain talent and retain talent. So you might want to think about sustainability in terms of diversity, in terms of equal opportunities, in terms of development programs for your workforce. If you are a company having a big supply chain working in different countries all over the world you want to make sure that you do not only look at the risks which are traditionally connected to supply chains like, for example, currency exchange risks and so on. You want to make sure that your supply chains are stable that you are able to know that you can rely on those structures and also that you do not have reputation risks coming from them. We think about all those big companies, also US companies who had bad PR because of having Chinese companies and those workforce killing themselves because they were so unhappy with the working conditions. Or let's say for the clothing industry, when we had those catastrophes in Bangladesh, for example, with supply firms burning down and then people could see those bad conditions and that those people had to manufacture the clothing we are wearing here in the West.

Those kinds of things are the starting point to think about what you are doing as a company and to think about your own operations and your value chain and what you need to make sure to be resilient, meaning to not only be able to work today, but also in the future. And the future is now in a big transition. We see in different parts of the world that climate is changing, that people start to move away from countries because it's too dry. They do not find enough work anymore. They're unhappy. They want to go into different countries. So we have a lot of movement everywhere, and we need to prepare ourselves and to think about our own responsibility. The world has committed themselves to the Agenda 20 30, to the Sustainable Development Goals, and also companies are asked to contribute to these goals. So that's why we need to think about what we as a company can do, should do, and have to do in order to be successful, not only today but also tomorrow and in the future.

Adrian McIntyre: 21:41

Thanks for listening to this episode of PRGN Presents, brought to you by the Public Relations Global Network.

Abbie Fink: 21:47

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