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Prepare to report a sustainable strategy not a sustainability strategy

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5 minute read 26 Sep 2025
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How integrated ESG reporting discerns between genuine sustainable business practices and compliance.

In brief:

  • Annual reports are windows into how leaders genuinely think about their business.
  • Clear strategic thinking should inform reporting, with annual disclosures reflecting actual business priorities.
  • Proposed UK sustainability reporting standards will distinguish between companies with connected system thinking versus those focussing on sustainability only on a declarative level. 

The annual report remains one of the few places where companies tell their complete story. In an era of significant stakeholder scrutiny and regulatory complexity, this story needs to be coherent, credible and compelling.

The question isn't whether your company can produce an annual report that meets technical requirements. It’s whether your integrated reporting about your business model, operating model, strategy and related performance metrics truly reflects the reality of how leadership manages the business.

The UK government is currently assessing sustainability reporting standards for potential use. Once complete, the government and the Financial Conduct Authority (FCA) will decide whether to mandate their application and for which scope of companies.

The reckoning is coming

These standards won't just change disclosure requirements. They will expose the difference between companies that have genuinely integrated sustainability into their strategy and those that have been approaching it with less commitment, mainly as a box-ticking exercise. Companies still operating with disconnected approaches may find themselves unprepared for requirements that will demand connected information across disclosures related to business model, strategy and sustainability.

Download: Setting the stage - In anticipation of a new non-financial reporting regime (PDF) to read the full report.

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What annual reports reveal

Our review of FTSE 350 annual reports shows a stark divide. Some companies present narratives that link their business model to strategic priorities, risk management and performance metrics. Others compartmentalise these elements, suggesting that leadership views sustainability and governance as expensive add-ons.

 

What distinguishes companies isn't what they say about sustainability, but whether they can prove integrated thinking through which sustainability factors genuinely connect with their broader strategic narrative and contribute to value creation. Too many disclosures treat business model descriptions as static diagrams, whereas the 'sustainability pillar' operates in isolation from other strategic priorities.

 

Our analysis reveals that companies disclose an average of six financial and four non-financial key performance indicators (KPIs), but the thoughtfulness behind metric selection varies dramatically. Some companies simply label all their environment and social (E&S) data points as KPIs, obscuring what drives decision-making in practice. Others choose metrics with tenuous connections to business priorities. For example, gender diversity metrics from companies that struggle to explain why talent management is critical to achieving strategic objectives.

Setting the stage research report
is the average of non-financial KPIs that UK companies disclose on.

When companies present ambitious sustainability targets in their annual reports, yet investor presentations focus exclusively on financial metrics, they expose inconsistent messaging about the drivers of their business. Of companies that included non-financial KPIs in their annual report, 50% did not include any non-financial KPIs in their year-end investor presentation. For some organisations, sustainability factors simply aren't business imperatives, even though their annual reports suggest they are. The new standards are expected to highlight such inconsistencies.

Setting the stage research report
of the companies that included non-financial KPIs in their annual reports did not include them in their year-end investor presentations.

How EY can help

Risk management reveals true priorities

When reporting is integrated, the most sophisticated risk disclosures explain not just what could go wrong, but how different risks interact within sustainable business practices. They show how companies build resilience into their business and operating models. Weaker disclosures list risks in isolation, missing interconnections that often amplify business impact: a dangerous blind spot that new standards will highlight.

 

With draft UK sustainability reporting standards requiring disclosure of sustainability-related risks that could affect prospects, companies will need to prove how such factors influence cash flows, access to finance and cost of capital. This will require a more rigorous approach to embedding sustainable practices in the business strategy and integrated reporting covering both financial and non-financial objectives. 

 

Integrate now or risk losing stakeholder confidence later

 

Reporting should transparently reflect the approach you've chosen, rather than presenting aspirational strategies that don't align with operational reality. Companies wanting to strengthen their reporting should focus on two priorities.

 

Firstly, ensure your business model explanation accurately reflects how your business operates and choose only KPIs that genuinely reflect your strategic priorities. In the near future, the degree to which sustainability matters to business performance will become evident through how the metrics connect to business imperatives. Report on sustainability only to the extent it genuinely matters to business performance. The new standards will reveal inconsistencies between stated priorities and actual business drivers, which may impact stakeholder confidence and require management to demonstrate authentic strategic integration.

 

Secondly, align your story across all stakeholder communications. If your annual report emphasises sustainability as a strategic priority, but investor presentations focus on different metrics, you're signalling inconsistent leadership thinking. Capital allocation decisions reveal priorities most clearly. Companies that genuinely integrate sustainability discuss how sustainability factors influence all investment choices where relevant, not just dedicated sustainability investments.

Summary

Some companies show authentic alignment between sustainability goals and business operations through their annual reports. Others exhibit fragmented approaches that treat sustainability primarily as a compliance exercise. The new standards will highlight opportunities for more strategic integration.
UK sustainability reporting standards will distinguish between companies with coherent strategic integration and those with disconnected approaches. Organisations with fragmented reporting approaches may face increased stakeholder questions about strategic coherence.

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Authors

Related topics
Assurance
Climate change and sustainability services
CFO agenda
Long term value

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