Your expert for questions
Partner, Sustainability Services, PwC Germany
Tel: +49 69 9585-2115
Current events are transforming the way we live and do business. Companies need to adapt or completely redesign their business models if they want to ensure long-term value creation. However, the steering methods and the language used to describe business performance are outdated – and heavily influenced by conventions from the finance industry. A holistic approach is needed in order to make organisations fit for increasingly uncertain times. The sustainability experts at PwC can help you to integrate non-financial information and value drivers into your core steering tools and your approach to external reporting.
Global megatrends like climate change, technological advances and the Covid-19 pandemic are causing far-reaching changes – and the impact of these changes can be seen in the rising value of intangible assets for a company's market valuation. In the last 25 years, the value of intangible assets has risen continuously. Today, intangible assets account for more than 80 percent of a company’s value. In the 1970s, by comparison, they accounted for just 20 percent.
"Today, a purely finance-oriented steering approach is no longer sufficient for managing the non-financial factors that drive value. We need a new form of reporting that places a stronger focus on reflecting stakeholder interests. This is the only way to give the public and investors a credible and comprehensive picture of a company."
What are the value drivers?
Reporting about sustainability-related topics is not a new invention – regulators and investors see it as a recognised practice that has matured over many years. Investors are demanding increasing amounts of information in order to assess the adaptability and future-readiness of companies, and regulators are expanding the documents that specify the rules for compliant reporting to include increasingly detailed descriptions of how companies should provide this information. Supervisory boards are including these topics in their approaches to ensuring effective corporate supervision.
What is the objective?
Sustainability reporting ensures a company's compliance with regulations and also provides a platform for companies to shape their public image. More importantly, however, sustainability reporting is a tool for holistic corporate steering and reporting. Effective sustainability reporting focuses on providing the right non-financial information to a high standard of quality and in a timely manner in order to enable fast decision-making and communication with market participants at all times. Auditing this information – in a way that has been standard practice for financial reporting for many decades – increases the credibility of the non-financial report for internal and external stakeholders.
What are the advantages?
More trust: Higher quality of data due to standardised non-financial reporting processes and internal controlling systems.
More transparency: In response to established reporting standards, and future rules and regulations.
Lower risks: A holistic overview of the company provides a solid foundation for making the right decisions.
Increased value: Better access to finance when environmental, social and governance considerations are incorporated into external reporting.
It is vitally important for companies to build trust with their stakeholders – particularly in times of crisis. Trust is built through actions, and also through communication about those actions. Market participants expect full transparency and want to be kept in the loop at all times. Reliable information is absolutely essential in order to create the necessary level of trust. Exercising the appropriate due diligence and conducting an external audit can form the basis for this level of trust in a company’s non-financial data and information.
It is only possible for a company to make well-informed decisions and communicate openly with stakeholders if it has a holistic understanding of its performance and the way it creates value. This requires an effective steering and reporting system that focuses on the relevant factors that influence the company's value creation process. If decisions are also made based on non-financial information, this information should not have a lower level of data quality than financial indicators. Rather, it should be integrated into established, standardised financial reporting processes.
Holistic steering and reporting create credibility and trust from the market – and also make sure that sustainability is embedded into all areas of the company. In this way, sustainability is treated as a core element of modern corporate management in line with its importance, rather than being viewed as a marginal issue.
Internal and external sustainability reporting should focus on relevant and meaningful metrics (Key Performance Indicators, KPIs) that can be used to identify and steer positive and negative impacts on key areas of the value creation process. These KPIs should be based on coherent reporting processes in order to ensure accurate and reliable data.
A fully functioning Internal Control System (ICS) is vitally important in order to generate reliable non-financial data for effective decision-making and to strengthen the trust of stakeholders. Standard definitions for KPIs, as well as automated and standardised processes, and formalised and effective controls, are fundamental to obtaining accurate and comprehensive non-financial data.
An integrated dashboard gives a company a solid overview of the value creation process. It shows how stakeholder expectations are integrated into its strategy and provides insights into risks and opportunities. In essence, it highlights the KPIs that are necessary for the company to manage progress toward achieving its goals.
It is important to select the right content for external communication and to create a structured report that provides a holistic view of the company. This enables a company to meet the needs of all relevant stakeholders, rankings and ratings – while also avoiding a situation where stakeholders are overwhelmed by an excessively detailed or complex reporting approach.
There are more and more requirements and reporting standards for non-financial reporting. Meeting all of these expectations is a significant challenge for companies. In addition to the CSR Directive Implementation Act in Germany, there are several voluntary standards – including those for the Global Reporting Initiative (GRI), as well as those for the Task Force on Climate-related Financial Disclosures (TCFD), the United Nations Sustainable Development Goals (SDGs), the Principles for Responsible Investment (PRI), and the German Sustainability Code (Deutscher Nachhaltigkeitskodex, DNK). The challenge for companies is to select the standards that add value and that best facilitate compliance with regulatory requirements.
In general, reporting processes for non-financial data do not offer the same level of maturity as those for financial reporting. External assurance helps to ensure the reliability of the data and can assist the supervisory board in performing its monitoring function. In addition, external assurance can identify gaps in the reporting process and the approach to controlling, which enables further improvements to the sustainability reporting approach.
Holistic steering and reporting can ensure that sustainability is much more than a “nice-to-have” topic by making sure it is addressed in all areas of the organisation that have an impact on steering – and that it gradually becomes integrated into the company’s DNA.
Our experts will accompany you along your journey towards fully integrated non-financial steering and reporting. This includes support with the following aspects:
From strategy to implementation: We support you in defining the ambition for your reporting – and also with implementing it. Whether you are planning your first sustainability report or want to improve an established integrated report, we are here to help.
Defining KPIs: We help you to break down your strategy into relevant key indicators and to define a control and reporting concept that takes into account the regulatory requirements and market trends relevant to you.
Improving quality: We help you to improve the quality of non-financial information by standardising definitions, introducing formalised processes and implementing internal controls for non-financial factors.
Integrating KPIs into decision-making processes: We help you integrate non-financial information into key decision-making processes.
Ensuring regulatory compliance: We help you to understand the relevant regulatory reporting requirements and work with you to review the various reporting standards and select the best mix that will enable you to meet the requirements of your investors and your industry – while maintaining a strong focus on cost-benefit considerations.
Assurance readiness: We help you to generate non-financial information that is suitable for an external auditing process.
Conducting conventional assurance services: We offer assurance services for all manner of non-financial information. For example, this includes assisting the supervisory board with its monitoring function by conducting an external audit of non-financial reports in line with the German Commercial Code, GRI standards and other reporting standards such as SASB or the DNK.
Additional assurance services: Auditing non-financial information is becoming increasingly relevant for decision-making processes in a wide range of areas. For example, customers want to understand the sustainability of a company’s product portfolio to make sure the company is not engaging in greenwashing. Similarly, investors want to be sure that green bonds are being used appropriately and are having a positive environmental impact. For these issues, and may more, we offer solutions in the form of assurance services that go beyond the scope of traditional reporting.
Integration: The biggest challenge is to bring together employees from different areas of the company and to overcome silo-thinking mentalities. Our team will help you to connect your business units by bringing the different perspectives together to form a coherent storyline.
Continuation: You don’t need to reinvent the wheel. We will build on what you have already established and will provide our expertise wherever it is needed.
Experience: We have deep expertise and will help you to safely navigate the jungle of regulatory requirements and non-financial reporting standards.
Finger on the pulse: We support the process of developing standards and work closely with policymakers and other interest groups. You can benefit from our deep knowledge of current and expected future requirements for sustainability reporting and assurance.
Value-adding: We can help you to achieve a transparent overview of the value-adding factors for your company.