Sustainability is a word that is used both in the spheres of government, companies and especially among the people who make up our society: it is in the interest of EVERYONE.
In recent months and years, progress in developments in sustainability reporting has been enormous. The demand for companies to consistently disclose sustainability information globally has become a priority for the investment community as well as for various levels of government around the world.
What is the sustainability report?
Traditionally, corporate reporting has focused on reporting the financial situation, performance, cash flow, and changes in equity of a company. This type of report has been used as a way to measure the value of a company.
Other factors also impact the value of a company, which may not be fully taken into account in traditional financial reporting and are linked to the sustainability of the company model in a broader sense.
The sustainability report is a formal and informative document where companies communicate their performance in three fundamental aspects: the environmental dimension, the social dimension and the economic-financial dimension objectively, covering a specific period, generally a financial year.
Each of the elements of the report must be verifiable and comparable with the historical result of the company, to analyze the evolution of the company.
There are several standardized formats to make a report, for example, we can name: GRI (Global Reporting Initiative), Global Compact, ISO 26000 and the most recent, under construction, the IFRS Foundation is developing a new standard, through of the International Sustainability Standards Board – ISSB, identified as the IFRS Sutainability Disclosure Standards – IFRS SDS.
Why are investors and stakeholders demanding this kind of information?
It is increasingly common for investors to request information that affects the value of a company but is not reflected in the traditional financial report. As an example, climate change can affect the value of a company because forest fires caused by drought can generate a decisive change. in its business activities or require additional capital expenditures. Or the case of a company that emits significant amounts of greenhouse gases may eventually suffer financial consequences as a result of government intervention, decreasing demand for its goods and services that become “obsolete” because they must be replaced by alternatives and/or active “greener”, leading to inefficient capital allocation.
Several institutional investors have begun to demand greater transparency about sustainability in public communications, as well as changes to their own investment policies, which are designed to encourage investment recipients to disclose sustainability-related information.
This shift in investor demands has already impacted the cost of capital for companies around the world to some extent, as investor demands shift the allocation of global capital toward companies that demonstrate a commitment to sustainability-related initiatives. .
For some years now, we have had green bonds that are used to finance or refinance green projects, that is, they finance projects involving sustainable and socially responsible assets in very diverse areas.
Although this may seem very far away, it is not. Uruguay, with its sights set on reducing its greenhouse gas emissions by 2025, decides this year to issue a sovereign bond with an interest rate tied to its environmental goal. This places our country as a leader on a Latin American and world scale.
At a private level, the main pulp company in Uruguay finances part of its investments and its pulp project in Uruguay with “green bonds”, with the commitment to generate a positive impact on the biodiversity of its plantations and reduce CO2 emissions from Your activities.
At the level of the local financial market, some private banks have lines of credit for sustainable projects whose purpose is to support and accompany companies that have a commitment to sustainability and the environment.
Another banking entity, but in the same vein, has presented a new product for the purchase of housing with maximum energy efficiency (LEED, EDGE), which rewards (in rates and commissions) those customers committed to protecting the environment.
To achieve this objective of the Paris Agreement, an international agreement on climate change, significant reductions in greenhouse gas emissions will be needed. This will require vast improvements in both the level of efficiency in energy use and the ways in which it is produced. Consequently, fundamental changes will be needed in the ways in which business is conducted, regardless of industry and company.
The nation states have committed to making concrete efforts and Uruguay is no stranger to them.
These demands from investors and the commitments made by governments require the participation of companies from all over the world. Several jurisdictions are enacting laws and regulations that will require disclosure of sustainability information in the relatively short term. Disclosure is rapidly evolving from being optional to being mandatory.
At a business level, not assuming responsibility and carrying out actions in favor of sustainability in your business could be relegating companies to a lower level, making credit more expensive or not being favored by preferential rates and probably losing markets, due to the consumer awareness that aims to prefer companies that are friendly to the environment and sustainable over time.