Restating sustainability metrics is on the rise – here's how to hold up to scrutiny

The introduction of new EU reporting rules will see an increasing number of restatements across a broader range of sustainability metrics, warns Deloitte. Communicating transparently and working with the finance function can help Chief Sustainability Officers hold up to growing scrutiny.

Almost half of FTSE 100 companies restated climate and sustainability metrics this year, analysis by Deloitte has found, either because measurements have evolved, or because they were incorrect to begin with.

Of the restatements across 46 of the UK’s largest companies, 89% related to greenhouse gas emissions (GHG) metrics, with the remainder (11%) comprised of a variety of other sustainability topics including waste, water, diversity & inclusion, and health & safety. A third of all restatements related to Scope 3 metrics.

The most frequent reason for restatements related to a change in method or measurement approach (44%), which is an acceptable practice for GHGs under the GHG protocol, while the second most frequent reason was the correction of errors (29%).

Deloitte said the high level of restatements could indicate that quality and rigour around non-financial reporting is improving, however it also demonstrates the volatility of ESG reporting in the market today.

Sustainability restatements: Preparing for CSRD

The introduction of the Corporate Sustainability Reporting Directive (CSRD) – which some firms will report against in December 2024 – will likely result in even more adjustments across an even broader range of metric appearing in UK plc reports, Deloitte warns.

Organisations within its scope will have to report on a wide range of material qualitative and quantitative environmental, social and governance disclosures from financial years starting as early as  January 1, 2024. 

Katherine Lampen, partner and climate and sustainability lead at Deloitte, tells CSO Futures that accurate and transparent sustainability data in annual disclosures is not just good practice, it's becoming a business imperative. 

Boards increasing scrutiny on ESG reports

“What we've seen over the last 12 to 18 months is NEDs and boards becoming much more interested in what they're signing off as an annual report because it is being analysed at a more granular level by stakeholders,” Lampen says. 

“So be prepared to have that additional challenge on this type of data going forwards. We've seen a definite increase in investors looking at this information, because of the link to good governance and oversight.”

Transparency and clear explanations will help to avoid accusations of greenwashing, Lampen adds. “Having a very transparent basis of reporting is so important and being able to identify why an organisation has restated something – for example because of a significant business change. 

“Methodologies vary and companies have to make assumptions where they have missing data. But with the regulations coming through, clients are having to move to reasonable assurance in the future and that does create a market for sustainability assurance and non-financial assurance.”

Execs and boards are asking for a more holistic view of the risks and opportunities presented by sustainability, Lampen says. “If I was on an audit or risk committee, I'd want to see that full view of what's going on. Something like climate risk isn’t always fully integrated into how organisations look at their overall risk. Having a more holistic view that can help support some of those decisions and future strategy will become more and more important.”

Adjusting targets: Clear explanations needed

She also believes companies will face more scrutiny around their net zero targets and interim goals – particularly because of a recent wave of dropped corporate climate commitment.

“If I lose sleep at night on this, it's particularly around targets which is an area less subject to standard reporting and the requirements through things like CSRD. If we look back to COP26, when everyone went out with a net zero target, we're now seeing a lot of restating of those targets, and without explaining why. I think that's an area that will gain more attention going forwards.”

Lampen also advises ensuring remuneration linked to sustainability targets is thoroughly understood. “A lot of companies set targets without a concrete plan of how they were going to get there. Being clear about targets and honest and transparent when you're not meeting them is something that we're seeing more of. But a lot of execs are not used to seeing negative information in some of these reports, so it's a bit of a culture change.”

Lampen’s advice to CSOs is to turn to the finance function or internal audit for help on sustainability reporting. “That relationship between the finance function and the sustainability function is critical. Some CSOs are overwhelmed with the amount of regulation and requirements that are coming in. 

“They're also exposed to a huge amount of pressure from their execs to change the dial from a performance perspective. Working with the finance function or internal audit has been helpful for a lot of them to make the data as robust as possible.”