Scrutiny of sustainability reports is set to increase after it emerged that almost half of FTSE 100 companies restated climate and sustainability disclosures this year, according to analysis by Deloitte.

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

The Big Four firm’s analysis found that 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. However, correction of errors (29%) emerged as the second most common cause.

Deloitte says 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.

CSRD to prompt further adjustments

The introduction of the Corporate Sustainability Reporting Directive (CSRD) is likely to result in even more adjustments across an even broader range of metric appearing in UK plc reports, Deloitte warns. Organisations in 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 on or after 1 January 2024. 

Katherine Lampen, Partner and Climate and Sustainability Lead at Deloitte, says accurate and transparent sustainability data in annual disclosures is not just good practice, it’s becoming a business imperative as the scrutiny of boards increases. 

“What we’ve seen over the past 12 to 18 months is non-executive directors 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. We’ve also seen a definite increase in investors looking at this information because of the link to good governance and oversight. So be prepared to have that additional challenge on this type of data going forwards.”

Integrating climate into overall risk

“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,” Lampen adds.

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

At the same time, organisations are being warned against setting sustainability targets without understanding how they will be achieved, as the scrutiny of stakeholders on sustainability ramps up. They also need to consider how and in what manner sustainability targets are linked to executive remuneration.

“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 COP 26, when everyone went out with a net-zero target, we’re now seeing a lot of restating of those targets without explaining why. I think that’s an area that will gain more attention going forwards.”

Be transparent to avoid accusations of greenwashing

“A lot of companies set targets without a concrete plan of how they are 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 said the onus is on collaboration between the finance and sustainability functions on sustainability data. “Chief strategy officers 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 a finance function or internal audit has been really helpful for a lot of them, so I’d encourage them to work together as two communities to make the data as robust as possible.”

Opportunities for ACAs

And there are huge opportunities for ACA-qualified accountants in helping organisations address some of these challenges, Lampen says. “They say accountants will change the world and I think finally we’re seeing that. Sustainability data is so varied that it doesn’t have the same controls around it. The skillsets of accountants are absolutely applicable for this space.”

And as the focus on materiality prompts organisations to identify and disclose the most relevant and significant sustainability issues for their business, the indicators that are being reported will become more and more sophisticated, she predicts. 

“Having that industry lens on top of the ACA will become hugely important – as you get companies reporting on things like electromagnetic frequencies for mobile providers or management of tailings for mining companies, data points will become more unique to industry impact.”

Richard Spencer, ICAEW Director, Sustainability, described the report’s findings as both timely and illuminating. “As the authors note, it demonstrates the increasing seriousness with which sustainability issues are being approached. But it also perhaps signals just how far many businesses have still to go. It further indicates the vital role the accountancy profession must play in embedding reliable sustainability information into decision-making and disclosure.”