Risk management - sustainable forecasting

The capital market needs to make informed decisions. And yet, according to their responses, companies lack the transparent risk management information needed to support this decision-making. The ever-changing VUCA world has created a demanding audience and sustainability forecasting and risk assessments are more important than ever.

Times are changing. Companies live in a volatile, uncertain, complex, ambiguous world (VUCA), and cultivating the ability to adapt and respond is the only way for them to push forward. The capital market audience recognises this as well. Global issues are everyone's problem, and when children strike to highlight the importance of climate change, the need to act means more than keeping up with corporate legislation.

The capital market is hyper-aware of this VUCA world and they demand transparent risk management information as part of corporate sustainability communication.

Transparent risk management = better investment decisions

For companies, the VUCA world is not a surprise; it’s been recognised and discussed as a market trend for some time now. But, according to our respondents, how companies should communicate sustainability – and what the recognised risks of sustainable business targets are – often remains unclear. For the capital market, it’s not just a matter of understanding where the company stands today, but also what these actions will mean in 10 years.

“Goals for the future, major risks, and historical progress are the most important content in sustainability reports”

Fund Manager, Global markets

Don’t hide information behind your sustainability report

Investors and analysts want to see that businesses are sustainable. On the other hand, companies are well aware that growth entails certain environmental and social risks that should be communicated to the capital market. Even though the overall importance of sustainability information has been rising continuously since 2015, most respondents do not get their information from reports: 52% of our capital markets respondents have stated that they don’t read them.

GRI is one of the most widely followed corporate reporting standards and it often forms the baseline for presenting sustainability data. On the whole, sustainability reports are seen as highly important - with a score increase from 74% to 80% over the last five years - and they can offer information about future targets, risk management, and anti-corruption policies for the stakeholders who do read them. However, as most companies still rely on these sustainability reports as their primary means of communication, the message is not getting through.

Today, GRI is one of the most followed reporting standards by the companies and the results form often a good base for the sustainability reporting. Reports offer information about future targets, risk management, anti-corruption policies for those who read it and the latest sustainability reports importance has increased from 74% to 80% during the past five years.

...of respondents say that sustainability reports contain enough information to understand company's sustainability approach

....of respondents don't read sustainability reports

Sustainable business

According to one of our respondents, the most important aspect of sustainability reports is “the sustainability of the business, literally”. Still, only 35% of respondents agree that these reports offer enough information about a company’s approach to sustainability.

The question remains: are you including all of the relevant information in your sustainability reporting? According to our research, these were the most important topics for the capital market:

Top 3 sustainability topics by their increase in importance ratings (2015-2019)

  1. Whether the company follows the UN’s SDGs
  2. Sustainability strategy
  3. Social data and the latest sustainability report

Top 3 most important sustainability topics

  1. Sustainability strategy
  2. The latest sustainability report
  3. Environmental KPIs

If the 2030 strategy targets are clear and a company's work towards “zero waste to landfills” is the focus point, justifying the company’s goals and current actions are the key to efficient stakeholder communication. Transparent information about the risks that this commitment to the business entails can help stakeholders make better investment decisions. Showcasing this journey with results – current, forecasted, and upcoming – can also be the push that your investors need to fully commit to supporting your company.

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