Importance of Transparency and Disclosure
Environmental Defense Fund
Transparency and disclosure are important parts of disclosure frameworks, and they help companies report progress against their sustainability targets. It is important to consider how your disclosures will be understood by various stakeholders, such as investors and community members.
Transparency and disclosure are essential in reporting environmental progress and are required of companies participating in common target setting and disclosure frameworks. Climate disclosures are also becoming mandatory in many jurisdictions, including over 35 countries, and are an increasingly frequent demand from investors and lenders. As the regulatory landscape continues to evolve, environmental reporting is likely to become more prevalent. Being ahead of the curve on these disclosures can support your company and reduce risks.
By being transparent about your environmental targets and disclosing information about your environmental impact, you can build trust with your stakeholders, identify areas for improvement, and track your progress over time. This allows you to better communicate your commitments and progress to governments, investors, customers, suppliers, and communities where you operate. As you disclose, it is important to accurately report your progress and avoid greenwashing. Greenwashing is when your company knowingly makes misleading statements about its environmental impact and sustainability.
Implement Transparency and Disclosure
Environmental transparency allows stakeholders to understand how an organization is impacting the environment. It means being open and honest about your environmental performance and sharing accurate and relevant information. By being transparent, you can build trust with your stakeholders and meet regulatory requirements. Environmental transparency also allows stakeholders to hold you accountable for your actions, ask questions, and identify gaps in your environmental management.1 Transparency also includes being clear about your environmental goals and how you plan to achieve them. For example, if you want to reduce your greenhouse gas emissions by 20%, you need to explain how you plan to do this, what measures you have in place, and what your timeline is. This gives stakeholders a clear understanding of your intentions.2
Disclosure is important because it allows stakeholders to understand the context of an organization’s environmental performance. It means sharing information about your environmental impact, including the amount of waste you generate, the amount of energy you consume, and the emissions you produce. By disclosing this information, you provide stakeholders with the context they need to understand your environmental impact and track your progress over time. When choosing what to disclose, you should consider the materiality and err on the side of overexplaining. It is best practice to follow a commonly accepted disclosure framework, such as the TCFD.
You should be transparent and disclose the environmental effects of their operations to the local communities in which you operate. Transparency and disclosure of environmental impact can have a significant impact on your company’s reputation and relationship with local communities. Open and honest communication can help your company build trust and goodwill with local communities and help maintain the company’s social license to operate. By being transparent and disclosing information about your environmental impact, you can also show that you are aware of your company’s impact on the environment and how it affects local communities.
Disclosing and demonstrating progress against your sustainability strategy can lead to increased support from stakeholders, which can help improve your company’s reputation. This can generate several benefits, including brand-building, employee retention and engagement, stakeholder trust, regulatory reprieve, and an improved public image.
However, it is important to note that transparency and disclosure must be genuine and credible. Greenwashing and performative action can quickly erode trust and goodwill and have the opposite effect on reputation. You must ensure that their disclosures are accurate, relevant, and complete and should avoid making unsubstantiated claims or exaggerating your company’s environmental impact. As an organization, you can ensure transparency and disclosure by following disclosure frameworks and being transparent about your data sources, methodologies, and assumptions.