In the evolving landscape of sustainability, mid-sized companies are increasingly focusing on how best to showcase their environmental efforts, especially as they set ambitious goals like achieving net zero by 2030.

While sustainability ratings and reporting actual figures are both used to communicate progress, they serve different purposes and offer varying benefits. For mid-sized businesses navigating voluntary disclosure, understanding the strengths and limitations of each approach is essential.

Sustainability Ratings

These are assessments provided by third-party agencies that rate a company’s overall sustainability performance. Probably the most notable one is Ecovadis, which is used by 130,000 companies around the world. Around 1,200 multinationals use this rating to manage sustainability in their value chain.

Ratings generally rely on a mix of publicly available information, self-reported data, and independent research to create an aggregated score or ranking, for example Gold, Bronze or Silver. This provides stakeholders with a simplified benchmark to compare sustainability efforts across different companies.

Advantages

1. Simplified Communication and Benchmarking

Sustainability ratings offer an efficient way for stakeholders to quickly gauge a company’s performance in key areas of ESG criteria. These ratings condense often complex data into a clear, accessible format, making it easier to understand a company’s sustainability efforts at a glance. They also allow for meaningful comparisons across organizations, providing mid-sized companies with valuable insights into their standing relative to peers and industry leaders. By benchmarking their performance against others, businesses can identify areas for improvement, highlight strengths, and make informed decisions to stay competitive in a rapidly evolving market that increasingly prioritizes sustainability.

2. Credibility Through Third-Party Validation

Ratings from reputable third-party organizations serve as an independent assessment that can significantly enhance a company’s credibility and build trust with stakeholders who value external validation. Additionally, a strong sustainability rating can be a powerful marketing tool, allowing companies to showcase their commitment to environmental and social responsibility in promotional materials, thereby strengthening their brand image and appeal to conscientious customers and partners.

3. Efficiency in Communication

Ratings are also useful for summarizing complex sustainability data into a single score or ranking, making it easier to convey a general message about performance.

Limitations

1. Lack of Granular Insight

Sustainability ratings, while convenient, often condense complex data into a single score, which can oversimplify nuanced performance metrics and obscure critical details or progress in specific areas. Additionally, mid-sized companies may find that these ratings lack the flexibility to account for unique challenges or sector-specific sustainability efforts, resulting in assessments that do not fully reflect their individual circumstances or achievements. Furthermore, ratings do not address the growing demand from some stakeholders for more granular data to support their own detailed reporting needs, leaving companies to fill gaps that standardized ratings cannot cover.

2. Methodological Variability

Sustainability ratings can be hindered by inconsistent standards, as different rating agencies often use varied methodologies, making it challenging to compare scores and creating potential confusion for stakeholders. Additionally, these ratings are frequently based on outdated data, resulting in a time lag that fails to accurately reflect a company’s current sustainability efforts and progress.

Reporting Actual Figures

This involves the detailed and transparent disclosure of specific sustainability metrics, such as greenhouse gas (GHG) emissions, energy consumption, water usage, and waste management data. Companies often follow recognized frameworks like the Global Reporting Initiative (GRI) or the Task Force on Climate-related Financial Disclosures (TCFD) to ensure consistency and comparability.

Advantages

1. Transparency and Trust

By disclosing actual figures, companies can offer a clear and transparent view of their sustainability performance, showcasing concrete progress and areas for improvement. Sharing these details not only enhances transparency but also helps build credibility with stakeholders, including investors and customers, who increasingly value openness and are more likely to trust companies that share their efforts and achievements openly.

2. Actionable Insights for Strategy

Detailed data empowers companies to pinpoint specific sources of emissions or inefficiencies, allowing them to develop targeted and effective sustainability strategies. By reporting actual figures, they can establish a foundation for continuous improvement, enabling ongoing monitoring and real-time adjustments to their approaches. This precision not only drives meaningful progress toward net-zero goals but also ensures that efforts remain aligned with evolving priorities and challenges.

3. Alignment with Science-Based Targets

Detailed reporting enables companies to align with globally recognized initiatives like the Science Based Targets initiative (SBTi), ensuring that emissions reduction goals are supported by accurate and reliable data. For mid-sized companies, such as those in manufacturing, reporting actual figures provides valuable sector-specific insights, identifying the production processes that contribute most to emissions and paving the way for targeted and impactful improvements.

Limitations

1. Resource-Intensive Process

Collecting, analyzing, and reporting detailed sustainability data requires significant effort, demanding more resources, time, and expertise from companies. Additionally, the complexity of detailed reports can overwhelm some stakeholders who may prefer simplified, easily digestible information, creating a potential disconnect between the level of detail provided and the needs of the audience.

2. Potential for Scrutiny

Voluntarily reporting actual figures exposes mid-sized companies to heightened public accountability, as it invites greater scrutiny from stakeholders. This transparency can become a double-edged sword, particularly if progress stalls or the data highlights significant challenges, placing additional pressure on companies to demonstrate consistent improvement.

Conclusion

While sustainability ratings can provide a useful overview and serve as a benchmark, they fall short of delivering the depth and detail needed for mid-sized companies to make impactful, data-driven decisions. Reporting actual figures offers the transparency and insight required for continuous improvement, alignment with science-based targets, and trust-building with stakeholders.

For companies who are serious about achieving net zero by 2030, the commitment to reporting actual figures is essential. By prioritizing detailed and transparent reporting, businesses can effectively track progress, adapt strategies, and showcase genuine efforts toward sustainability. In this way, they not only meet their environmental goals but also set themselves apart as leaders in their industries.