In 2010, Unilever released its "Sustainable Living Plan"Why did they generate this commitment and the need to disseminate its results? Also, what is in it for companies that have made similar decisions?

It is important to mention that Unilever's Unilever's decision to identify and report its impacts - as well as define measures to reduce negative effects and maximize positive ones - is not far from a market trend of the last two decades, with the incorporation of environmental, social and governance (ESG) issues by financial and non-financial companies, and which has gained significant momentum since 2020. This trend has different motivations and one, certainly, is regulation.

ESG regulation in Europe and Latin America

In Europe, countries such as France have had formal requirements on ESG disclosure by companies for a decade. Likewise, across the European Union (EU), from 2024, the Corporate Sustainability Reporting Directive (CSRD) obliges companies listed on regulated EU markets and large companies (over 250 employees or net turnover over €40M or total assets over €20M) to do the same. Like traditional financial reporting, their reports must follow defined standards and be verified by an external audit. Increasingly, for companies headquartered in Europe or with strong business connections, sustainability reporting is no longer an option, but an obligation.

In several Latin American countries, there are similar demands, as in the cases of Brazil and Colombia. It is important to note that, although some years ago these rules were designed specifically for national contexts, regulators are increasingly aligning themselves with international initiatives. Instead of designing very specific reporting rules, they indicate international standards, the scope that will apply to the country and the deadline for compliance. In this sense, the sustainability disclosure standards S1 (environmental and social) and S2 (climate) of the IFRS (International Financial Reporting Standards) are being (International Financial Reporting Standards) have become the main benchmarks in this regard.

Situation in Uruguay

Uruguay is taking its first steps in this direction. Benefit and Collective Interest Companies (BICs) are already obliged to present sustainability reports.. The Central Bank's Road Map (2022) has as a line of action in the medium to long term, to determine the type of ESG information to be disclosed by financial institutions and/or their clients.

The Observatory of Sustainability Reports of the School of Economics and Administration of the University of the Republic published this year a database of Uruguayan organizations that publish some type of sustainability reports, in order to analyze the evolution of the reporting in Uruguay and monitor the growing development of this practice in the country.

"We identified 113 organizations that published reports between 199 and 2022, of which 66 do so locally and not through their parent company," says Aiblis Vidal, Associate Professor at the Faculty and Coordinator of the Observatory and Professional Certification in Sustainability Reporting. "The trend is growing - both in the number of organizations that report year after year and in the number of local sustainability reports from Uruguay versus those from the parent company. In fact, we are seeing how in some areas competition is stimulated and at the beginning there were few companies reporting and today there are more and more." In addition to collecting and systematizing information from sustainability reports, the Faculty aims to generate lines of research based on the published reports, thus promoting transparency and comparability.

Opportunities and challenges of sustainability reporting

These publications partly respond to a demand from consumers, investors and other stakeholders of companies, who are looking for their money - whether for the purchase of products or to contribute to the company's growth - to be associated with positive impacts. In fact, according to PwCthrough a survey in more than 30 countries, people are willing to pay almost 10% more for products considered sustainable. Likewise, Morgan Stanley indicates that more than three-quarters of individual investors are interested in companies that consider ESG - in addition to generating market returns - and more than half aim to increase the share of responsible investments in their portfolio in the coming months.

Unilever's case reinforces the point that there are market opportunities that can be catalyzed through investment in sustainability and reporting to disclose their results: its sustainable brands are growing up to twice as fast as others.

On the other hand, there is evidence to affirm that the cost of preparing sustainability reports may exceed the budget allocated to implement actual changes. This problem is often related to the complexity and rigor of ESG reporting requirements, especially when companies face new regulations.

The costs of preparing reports include data collection, third-party auditing and ensuring compliance with multiple frameworks, which can lead companies to invest heavily in reporting while actual sustainability actions lag behind. This can lead to greenwashingwhen companies prioritize image management over substantial environmental or social improvements. Proportionate budgets may not be allocated to make tangible changes in operations, or targets set may be revised when governance changes and management decides to reduce environmental and social commitments, as happened recently in the case of Unilever..

Considering this, the most important thing for a company to start reporting its sustainability performance is to make a diagnosis of what are the material ESG issues for its business, identify the expected level of performance for the company - considering legal requirements, stakeholder demands and the level of performance of peer companies - and set goals. However, you also need to review the actions underway, what needs to be strengthened to meet your objectives and how to measure progress.

Only then will the report be based on hard evidence of commitment to sustainability and have a raison d'être beyond short-term reputational enhancement - through the disclosure of superficial and/or incipient actions - meeting the expectations of regulators, investors, customers, and other stakeholders. There are market players that seek to support companies in fulfilling this mission, such as commercial, development and multilateral banks, and funds that provide technical assistance for reports associated with their resources (see example of the Renewable Energy Innovation Fund in Uruguay, REIF).

Recently, Unilever disclosed that it will invest an additional €1 billion in sustainability. This time, the resources will go through a pre-established allocation process, according to the material issues associated with its operations and brands. This will require the company to raise the bar in its reportingby being more specific and transparent about the results generated with these resources and how they were achieved, in order to generate credibility among consumers and stakeholders.

Sustainability reporting: a growing trend

Depending on the publisher's intentions, a sustainability report can be a response to a regulator's demand, a marketing tool, or a marketing tool for a company. marketing tool, a greenwashing greenwashing or a decision-making tool and roadmap for the company's environmental and social management. What is a fact is that the trend of publishing them is on the rise around the world.

According to KPMGby 2022, 79% of the 100 top-earning companies in the 58 countries surveyed are reporting on sustainability and have continued to steadily increase reporting rates with each global survey they conduct. The same survey includes Uruguay for the first time and indicates that 57% of the top 100 companies already do so.

"In Uruguay, we are seeing that sustainability reporting is following a similar path to the one taken a few years ago by risk reporting in sectors such as finance and insurance," explains Virginia Suárez, director of Scotiabank Uruguay, United Nations advisor and independent director. "Before, it was not mandatory to report risks in a formal way, but over time regulation and transparency became key for the market. We standardized and today we speak the same language. It's the same with sustainability today: what used to be optional is now required, driven both by regulations and by investor and consumer expectations. We are learning and putting metrics in place; in fact, environmental and social risks are now specified in risk matrices. Companies that do not adopt this vision could be left behind."