Sustainable or Suspect? The Data Dilemma for Private Companies

Sustainability has become a big deal for businesses, but it's tricky for investors and other interested parties to get their hands on and compare sustainability data, especially for private companies. Here's why: 

Unregulated and Unstandardized (for Private Companies)

Unlike public companies, most private companies are not legally responsible for sustainability. Aside from the regulations private companies must follow, there is a lack of standardization in the metrics they report. In terms of data, the availability is scarce and quality is a mess.

Reporting Formats: A Mixed Bag

Even when private companies do share sustainability data into the same framework (such as EDCI), there is often confusion about definitions. In theory, how each company interprets the requirements should be the same, but in practice is often varied. 

Audit-Quality Standards Are Anything But

If you look at a company’s financials, you’re likely looking at data that is audit-ready. This is rarely true for sustainability data. The standards for reasonably assured, audit-caliber data are in their infancy with very few early adopters (with the exception of Tablecloth clients, of course).

Stakeholder Demand

Investor, consumer, and other stakeholder demand for sustainability data can be a key factor in whether private companies share it. When these stakeholders prioritize sustainability in their decision-making, private companies might be more likely to step up their sustainability reporting game. But what level of assurance are they looking for? Is their due diligence insistent on proof? 

Solutions to the Sustainability Data Dilemma

Regulations

Governments have the power to mandate standardized sustainability reporting from private companies, leveling the playing field and ensuring consistent disclosures. This aligns with existing practices, such as the mandatory filing of Form 5500 with the US Department of Labor, which details employee participation in retirement and healthcare plans, and quantifies the capital currently managed within these plans. 

Here’s the thing: Form 5500 gets filed pretty easily due to companies outsourcing benefits management; those vendors do the filing gratis. This shows that if we play our cards right, mandated reporting can be pretty efficient, especially when it works hand-in-hand with how industries already operate. 

We should seek out similar opportunities, using government oversight to gather and share anonymized data that's both meaningful and statistically sound. This kind of transparency can inform smarter decisions, hold companies accountable, and ultimately encourage more sustainable practices across the board.

Open Those Frameworks 

Collaboration between industry groups, sustainability organizations, and standard-setting bodies can extend beyond data collection and guideline creation to include the anonymous disclosure of results. This transparency would allow for easier comparison and alignment of various sustainability frameworks, alleviating the current fragmentation of the field. Plus, with all that (anonymized) data out in the open, companies would have a much clearer picture of what “good” sustainability looks like, helping them set better goals and make real progress.

Get Audited

Adopt the practice early, because it’s coming soon whether you like it or not. Use one firm to help collect your data (cough cough, Tablecloth) and use another to provide the assurance report. By building this muscle now you are A.) becoming more attractive to investors and acquirers, B.) adding a layer of future-proofing for your operations, and C.) declaring early on that sustainability is important to everyone, internally and externally, for the long term success of the company. The upsides to each are well proven. 

Stakeholder Engagement

Investors, consumers, and other stakeholders can guide companies on sustainability issues and what standards are important to them. By prioritizing sustainability in their investment decisions, stakeholders can steer companies to improve their sustainability reporting practices. They do this already. But the attention now shifts focus from a wide angle to close up: Stakeholders should be insisting on high quality data with true analytical potential. Investments can take that opportunity to proactively set the standard, rather than waiting for auditors and regulators to set them for you. In the end, it’s just good business.