MOL: Reinventing the ESG reporting wheel

MOL's Mikkel Skougaard likes to joke that the only people who used to read the sustainability report from cover to cover were him and the auditor. Now, though, anyone who has 15 minutes to spare can find out everything they need to know about the Hungarian oil and gas firm’s sustainability credentials.

Last year the Budapest headquartered company took a risk, bucking the trend for increasingly lengthy sustainability reports to produce a 10-page, 15-minute read for the investment community.

‘We know that going from 70 pages to 10 looks odd: Why don’t you have a 200-pager like your competitor does?’ says Skougaard. ‘But we also knew that the people who really care about ESG integration, who understand ESG integration, would understand our decision. The way analysts of MOL Group understand the key financial metrics is the same way they feel about non-financial metrics, so ultimately we knew we were doing the right thing.’

But what spurred this break with tradition? ‘We always had the feeling that nobody really read the sustainability report from one end to the other,’ Skougaard explains, adding that – more importantly – the company has been monitoring two diverging trends around ESG.

‘Although at an early stage, there’s an increasing sophistication around how to integrate ESG into investment decisions,’ he notes. ‘There’s also an increasing ability to differentiate between noise and signal in material and non-material information.

'The other trend we’re seeing is that sustainability reports are getting longer and longer – often they’re even longer than the annual report – and they're full of pictures, infographics, colors and graphs. So at a time when everybody is struggling with the integration of ESG, providing them with a 200-page report maybe isn’t the best route. It becomes impractical.’

Fertile soil for greenwashing

The trend for colorful, picture-heavy sustainability reports stems from the early days of CSR, explains Skougaard, who joined MOL with a background in governance at BlackRock.

‘When CSR reporting began, it was very much about trying to change the perception of global corporations, so the typical CSR report was often about how much the firm was doing for people in disadvantaged areas or how it was planting a couple of trees,’ he says. ‘And this approach has persisted.’

Skougaard says he expected the fashion for flashy sustainability reports to fade as the capital markets gained greater ESG sophistication – but the introduction of the UN Sustainable Development Goals (SDGs) essentially gave this trend a new lease of life.

‘The SDGs are a great thing to strive for and have slowly been incorporated into sustainability reporting,’ Skougaard notes. ‘But in my personal opinion, they provide really fertile soil for greenwashing. Basically any company can tick the boxes.’ But if you narrow down a report and purely stick to the facts, Skougaard reckons there’s simply no room for greenwashing. ‘You can’t paint a picture other than what the data tells you, and this is what we have done,’ he says. ‘We stick to fact-based reporting.’

How he sees it is that ‘if you’re a financial analyst, you’re interested in the financial reports and accounts, but you wouldn’t be interested in a sustainability report full of pictures. If you’re interested in the pictures, then you’re not going to be so interested in financial reports and accounts.’ So MOL took the risk and cut the report.

Now in its second year, the 10-page, streamlined report features one page of key indicators deemed most relevant for MOL, followed by nine pages of explanations. Skougaard is keen to stress that despite the much shorter report, no information has been lost: a new digital data library is available online for investors, analysts or other stakeholders if they want a deeper dive.

‘You don’t explain all your financial data, and you don’t need to explain all your non-financial data,’ he says. ‘If you want more, it’s all there, broken down by division or sub-division.’

This is an extract from an article that appeared in the Fall 2020 issue of Corporate Secretary sister publication IR Magazine. To continue reading, click here to open the full digital edition of IR Magazine