Five years ago, Zurich Insurance Group’s sustainability team shifted its reporting tasks across to its colleagues in the finance function as it looked to open up more time to flesh out the company’s sustainability strategy. As a result, all the relevant duties fell to Zurich’s Financial Accounting and Reporting (FAR) team.

Karthik Thilak, Group Head of Financial Accounting and Reporting since 2020, oversees all of the company’s sustainability disclosures. But rising to the challenge meant the FAR unit had to work through a period of adjustment, he explains: “Our main challenge was, ‘How can we leverage the company’s existing model for gathering financial data from across the business and apply it to sustainability?’ Even though we had a common infrastructure, there was no common definition for what we had to do.”

Faced with an ‘alphabet soup’ of codes and standards that were bubbling up from a fast-changing field, it was decided that FAR would create its own sustainability reporting manual. Its purpose was to pin down and define what Zurich’s Sustainable Accounting Policy should look like – including which KPIs and frameworks were most important for the business to observe.

For Thilak, a member of the Institute of Chartered Accountants of India, the manual’s main advantage was that it steered the business away from a generic approach and set the reporting task in a Zurich-specific context. “Eventually, it served as our bible,” he says.

Telling a story

Alongside the manual, FAR developed what Thilak calls an “accounting mindset” specially tailored towards sustainability, built around concepts such as completeness, materiality and timeliness of data. “Back then, this wasn’t a natural process. Sustainability reports of that era were not always based on balance sheet-dated information. Sometimes people were reporting data from 18 months ago,” he says.

To support timeliness, FAR carried out a thorough data inventory. “What do we have? What are we missing? How consistent is our data with the definition we’ve created? Do we have it for every business unit in all the countries where we operate? If not, how do we address the gaps? They were some of the points we examined,” Thilak explains.

FAR also made a conscious decision to follow a policy of ‘disclose or explain’. In cases where Zurich didn’t have relevant data, it was transparent about why: “We didn’t wait for precision. We opted for reasonableness and precision came later. That pragmatic approach helped us to focus on what was most important.”

Another cornerstone of FAR was to treat qualitative information with as much care as quantitative. “Sustainability reporting is not just numbers, like in financial accounting, but also the narrative. As an example, we are not just insuring our customers, but also actively helping them on their own journeys to net zero, as well as engaging with investees and other stakeholders. That’s all relevant to our storytelling.”

FAR sought assurance on Zurich’s sustainability reporting from year one, ensuring that feedback from external auditors would play a key role in shaping the outputs.

Driving evolution

Thilak is keen to stress that sustainability is a business-led topic at Zurich, rather than a reporting-led one. As a strategic tool, a focus on sustainability enables the company to work out how its operations should be positioned for 2030 and 2050. As part of that, reporting acts as a catalyst for helping the business gauge whether it is going far enough – and moving fast enough – compared with where it needs to be.

While the rhythm of Zurich’s external sustainability reporting is annual, the cadence of the internal work is quarterly: “Q1 sets the strategy for the year. Q2 leads us up to half-year – the first measurement of how we’re doing. Q3 is about what we need to do to hit our year-end ambition. And Q4 is about reporting on that ambition.”

And when the team isn’t actively reporting, it’s looking at ways to automate the process and increase its coverage. “Right now, sustainability reporting is not business as usual anywhere in the world. It’s still evolving, so we must help it progress. And because a lot of the data we need must come from external sources, such as customers and suppliers, automation is a big focus item.”

Boosting influence

Another key challenge, Thilak says, is interoperability of sustainability reporting standards: “While there have been welcome developments in 2023 with voluntary frameworks converging into IFRS S1 and S2 standards and the EU ESRS standards, ensuring that these standards are interoperable in various jurisdictions is crucial to limiting the reporting burden and balancing resources allocated to action as much as reporting.” 

In the absence of off-the-shelf offerings for sustainability reporting, use of technology is another challenge, he says. “So, there must be significant customisation. We have chosen a path of ‘buy and build.’ We haven’t tried to hit perfection from day one. Instead, we’ve taken an iterative approach, improving our tech every quarter.”

Sustainability reporting plays an important role in not simply supporting Zurich’s sustainability action, but also setting its course. “What gets measured gets done. As well as monitoring progress and addressing data gaps, our reporting helps us to identify opportunities and focus on relevant topics. This enables us to have a bigger impact than by trying to fix everything. In that sense, reporting drives tangible action within the company.”

The biggest value that accountants and finance professionals bring to this process is consistency and increased credibility, Thilak believes: “At Zurich we see ourselves not just as an insurer and an investor, but also an influencer. If we can inspire others to do something because we’ve done it, or plan to do it, that’s where momentum can kick in for the whole world. So we’re very proud of the role that our reporting plays in that.”