Managing Sustainability Reporting Complexities

Multitude of Reporting Standards

One significant issue is the historic lack of standardized metrics and frameworks. Numerous reporting standards and guidelines, from the Global Reporting Initiative (GRI) to the new European Sustainability Reporting Standards (ESRSs), create confusion and inconsistency. This inconsistency hampers comparability between organizations and undermines the credibility of reported data.

The new European Sustainability Reporting Standards (ESRSs) aims to fill a crucial gap in corporate sustainability reporting by requiring companies to disclose their governance strategies and actions addressing significant sustainability issues. Additionally, firms must report on the impacts, risks, and opportunities related to these issues. The ESRSs introduce a double materiality requirement, compelling companies to detail both the impact of their activities on people and the environment (inside-out perspective) and how social and environmental issues present financial risks and opportunities for the company (outside-in perspective).

For many European countries, this will be incorporated as regional regulation. However, the question remains whether this will be adopted in other parts of the world.

Through the new Corporate Sustainability Reporting Directive (CSRD), the ESRS will become mandatory for all large European companies. Making these standards regulatory, rather than voluntary, ensures a smooth transition. The ESRS aligns with recognized standards like the ISSB, covering both financial materiality (as seen in SASB) and operational impacts on sustainability. This comprehensive approach goes beyond current voluntary standards, offering a more holistic view of corporate sustainability.

Data Reliability and Accuracy

Data accuracy and reliability pose another critical challenge. Collecting and verifying sustainability data can be complex and resource-intensive, especially for multinational corporations. Obtaining accurate data from the supply chain and measuring Scope 1, 2, 3 (or 4) emissions is difficult. Scope 3 emissions data are particularly hard to grasp, requiring a comprehensive overview and collection process across the supply chain.

Gathering data from less mature stakeholders adds to this challenge. With no commonly accepted standard for Scope 4, figures often rely on estimates, but demonstrating the carbon emissions that technology can help avoid is not only beneficial but can also be critical for many companies.

Materiality

Furthermore, the issue of materiality arises when determining which sustainability issues are most relevant and significant to report. This is even more relevant now with the double materiality assessment as part of the new standard. Balancing the breadth and depth of reporting while ensuring alignment with organizational priorities poses a considerable challenge for sustainability practitioners.

The double materiality assessment is a framework used to evaluate both the "inside-out" and "outside-in" impacts. The "inside-out" perspective focuses on the company's environmental and social impacts, such as carbon emissions and resource use. Conversely, the "outside-in" perspective examines how sustainability issues affect the company’s financial performance, including risks from climate change and regulatory shifts. This approach is a valuable tool to help companies prioritize what is most important for them to achieve their goals.

Stakeholder Engagement and Public Perception

Meaningful engagement with stakeholders, including investors, employees, customers, and communities, is essential for understanding their expectations, concerns, and priorities. Failure to effectively communicate sustainability efforts and outcomes can result in missed opportunities to build trust and foster collaboration. This challenge is closely linked to greenwashing, which poses a significant threat to the integrity of sustainability reporting. Greenwashing misleads stakeholders, eroding trust and credibility within the sustainability reporting ecosystem.

Challenges for Energy Companies

Energy companies face unique challenges in measuring and reporting greenhouse gas emissions (GHGs). Comprehensive and accurate GHG reporting requires robust data collection, verification, and analytical methodologies. Tracking and reporting emissions throughout the supply chain to ensure transparency and accountability are critical.

The transition to renewable energy sources presents both opportunities and challenges. Investing in renewables to mitigate climate impacts and diversify energy portfolios is essential, but accurately reporting the environmental benefits and challenges is complex. Integrating renewable energy projects into sustainability reporting requires robust methodologies to communicate these benefits and challenges effectively.

The social dimension of sustainability reporting, particularly regarding community engagement and human rights, presents unique challenges. Energy projects often impact local communities, including land use conflicts, indigenous rights, and access to clean water and air. Meaningful stakeholder engagement, transparent grievance mechanisms, and respect for human rights are essential elements of credible sustainability reporting in the energy sector.

Managing the social and economic impacts of transitioning away from fossil fuels requires careful planning, investment, and collaboration with stakeholders, including workers, communities, and governments. Transparent communication about transition strategies, workforce reskilling initiatives, and community support programs is crucial for building trust and legitimacy in sustainability reporting efforts.

Balancing these challenges with the company's sustainability goals requires enhancing data management practices, stakeholder engagement, and reporting transparency.

Our Sustainability Reporting Challenges

At RESMAN, as an international company headquartered in Norway, we face different challenges in our home market compared to our global operations. In the European energy industry, specific challenges in sustainability reporting arise due to stringent regulatory frameworks and evolving market dynamics. European energy companies face rigorous emissions reporting requirements because of firm commitments like the Paris Agreement.

Our international operations encounter regulatory variations, cultural differences, and diverse stakeholder expectations. Engaging with culturally diverse stakeholders, including local communities and governments, requires sensitivity to regional norms and customs. Balancing global sustainability goals with local realities presents a multifaceted challenge for our international sustainability reporting efforts.

Local requirements and compliance issues differ across countries, ranging from Norway to the UK, the US, and the Middle East. In the UK, for instance, there's a duty of care requirement mandating adherence, particularly regarding safety measures and documentation during travel. In Norway, the Transparency Act emphasizes transparency in business operations, financial reporting, and corporate governance to ensure accountability and trust among stakeholders.

As a relatively small company with limited resources, managing diverse expectations worldwide is challenging. However, we are committed to continuous learning and improvement to navigate this evolving landscape effectively. We strive to communicate transparently and authentically about our sustainability practices and efforts.

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