The nature of sustainability reporting means that not everything that needs to be reported is easily measurable – if at all. Organisations fall back onto estimates, which brings with it the possibility of unreliable information that cannot be readily compared against their peers.
In the latest of its series of reports on sustainability reporting, ACCA has looked at the approaches that organisations are taking to estimate sustainability information when data is incomplete, unavailable or of uncertain quality. Sustainability reporting: Working with estimates includes anonymised examples designed to help finance professionals adapt and improve their approaches to estimating sustainability information.
Determining the material information about sustainability-related risks and opportunities (SRROs) that could reasonably be expected to affect the organisation’s prospects is an essential step to ensure that high-quality data is collected. But the complexity of sustainability topics such as human rights impacts, reputational risk or emissions in the value chain often make direct measurement unfeasible.
Data sources
The report stresses that while estimates ‘may not be accurate, their use does not undermine the usefulness of sustainability information if these estimates are accurately described and explained.’
Some issues with availability and quality could only become apparent once the work starts
As the report points out, some issues with data availability and quality could only become apparent once the work starts to collect and evaluate the data. IFRS Sustainability Disclosure Standards allow organisations to use all reasonable and supportable information that is available at the reporting date without due cost and effort; the report adds that organisations could use estimates when creating sustainability information based on the best available data, and then refine their disclosures over time as processes, systems and understanding of the topic mature.
Data collected from one location as a proxy for another is a reasonable compromise
When an estimate is used, the lack of established methodologies means that organisations will usually develop their own estimation methods. Research carried out as part of the report shows that 39% of organisations use public data sources when direct measurement is not possible, while 30% use expert estimates or ‘actual’ figures sourced from third-party professionals.
Data collected from one location as a proxy for another, provided both locations have similar parameters, is ‘seen as a reasonable compromise’, says the report, as long as the mapping process is transparent and the chosen proxies are relevant.
There is a downside to using proxy data, however, especially when that data is itself the product of estimates. ‘The more data is modelled, the less organisation-specific it becomes,’ says the report, which could render it less decision-useful. ‘When using third-party data as a proxy, organisations should evaluate the collection methodology, the sources of data and whether it has been verified.’
‘Poor data collection practices lead to a greater reliance on estimates’
The report stresses the importance of staff training in data collection. ‘When staff do not understand the purpose or value of the data collection exercise, they often see it as unnecessary extra work,’ said one environmental, social and governance consultant who contributed to the report. ‘Poor data collection practices lead to poor data quality and, thus, a greater reliance on estimates.’
The report also addresses systems and processes, which, it says, need to be ‘deliberately designed to collect sustainability data’. Organisations may have plenty of sustainability data available, but it may well be scattered across different functions and systems. Whatever the sustainability focus, organisations should set up processes and systems to capture some of the most important sustainability data, especially for prioritised SRROs, says the report.
Holistic and iterative
This means ‘thinking holistically about how the data will be used for creating both financial and non-financial information’. The report warns of avoiding the temptation to ‘rapidly implement a narrowly focused system with limited functionality that addresses only a very specific aspect of sustainability information’, such as recording or estimating greenhouse gas emissions.
Instead, it recommends a strategic approach to investment in systems – ‘ensuring they are scalable, integrated with broader financial or operational systems, and aligned with long-term reporting and business objectives’.
Collecting high-quality sustainability data is not a one-off exercise
Collecting high-quality sustainability data is not a one-off exercise, says the report, but requires iterative improvement. The right processes and controls are essential for improving data quality and reliability over time. People with deep expertise in setting up processes and controls are essential, but they must also have an understanding of sustainability.
The report acknowledges that sustainability reporting requirements are still evolving while globally accepted measurement methodologies for sustainability data have not yet been established. Even so, estimates will sometimes be necessary.
‘In the absence of high-quality data, the iterative improvements of estimates is a practical way of creating decision-useful sustainability information,’ it concludes. Estimates can be revised over time as knowledge of sustainability topics improve, better quality data becomes available, assumptions are refined, and processes and systems improve.
