Ultimate Guide to ESG Reporting: 6 Essential Steps

Environmental, social, and governance (ESG) factors are more critical than ever for your company’s overall performance and longevity. ESG reporting has emerged as a crucial tool for companies wanting to demonstrate their commitment to responsible and ethical business practices.  

To stay ahead of the ever-evolving curve, your business should have a solid understanding of ESG reporting, as well as how it helps showcase your sustainability and social responsibility efforts.  

In this article, we'll dive into the main aspects of ESG reporting: 

• What is ESG reporting? 
• Why is ESG reporting important? 
• Five benefits of ESG reporting for companies 
• ESG reporting frameworks 
• What are the key elements of ESG reports? 
• How to do ESG reporting 
• Five best practices for improving ESG reporting 

ESG reporting is the process companies use to track, document, and publicly disclose their progress towards ESG goals.  

The process is similar to corporate financial reporting, except ESG reporting discloses qualitative ESG metrics and information instead of accounting metrics. These include:  

• Environmental metrics such as waste produced and resource usage 
• Social metrics such as gender-pay ratio and community investment 
• Governance metrics such as incidents of fraud and executive compensation 

ESG reporting’s value can’t be understated — stakeholders no longer see it as a voluntary business practice, but as a crucial data source. Customers, employees, and investors all want to know how companies operate in sustainable, diverse, and ethical business practices.  

This is because: 

• Customers support companies committed to making a positive impact on society and the environment — 83% of consumers think companies should be actively shaping ESG best practices 
• Employees are more eager to work for ethic-driven companies — 86% of employees prefer to support or work for companies that share their same values 
• Investors also look at ESG criteria to evaluate a business’s profitability and long-term sustainability — ESG investing is found to yield higher returns 

Legal implications of ESG

Legislation on ESG reporting standards is being implemented worldwide, requiring greater institutional transparency.  

In the EU, the Corporate Sustainability Reporting Directive (CSRD) entered into force in January 2023, requiring large companies to disclose ESG-related information.  

Countries like the UK, Malaysia, and New Zealand also imposed legislation surrounding ESG reporting, while others, such as the US, are working on establishing ESG disclosure. 

All in all, ESG reporting is slowly becoming a must-have business practice, as companies face mounting pressure to show their commitment to sustainability. With upcoming regulatory requirements and growing stakeholder demands, ESG reporting is no longer optional for your business. 

You might be asking, “What’s in it for me?” After all, this introduction to ESG paints a picture of systemic restrictions. 

Beyond appeasing stakeholders and complying with changing regulations, ESG reporting brings additional benefits to your company. These benefits include: 

1. Better reputation  
2. Increased accountability 
3. Improved trust 
4. Greater access to capital 
5. Enhanced competitive advantage 

1. Better reputation

ESG reports are more than just disclosure agreements. By demonstrating your company’s cultural, process, and people commitment to your ESG promises, you can differentiate yourself from competitors and enhance your brand image. In the long term, this improves your business reputation and attracts future employees.  

2. Increased accountability

ESG reporting is a powerful accountability tool within and outside your organization. Internally, ESG reporting builds a culture of responsibility, ensuring employees consistently contribute to ESG goals. Externally, ESG reporting keeps stakeholders accountable for their promises.  

3. Improved trust

Your business can also use ESG reporting to establish trust with stakeholders. By sharing ESG data, you can demonstrate your commitment to responsible business practices, creating an open, trustworthy relationship with stakeholders. Moreover, ESG reporting can identify and address potential risks, which builds further confidence with stakeholders. 

4. Greater access to capital 

More investors are using ESG factors to screen investment opportunities — some funds will even completely dismiss companies that aren’t ESG-friendly. By being transparent and proactive in your ESG reporting, you attract investors who are looking for socially responsible investments. 

5. Enhanced competitive advantage

By prioritizing ESG reporting, you can gain a competitive edge by setting yourself apart as a sustainability and social responsibility leader. This is critical in ESG’s high-value industries like automotive or construction. As such, ESG reporting differentiates you from competitors, appeals to customers who embrace ESG, and positions your brand as forward-thinking and socially responsible. 

With the value of ESG reporting established, we can explore ESG in practice. Your business has a variety of ESG reporting frameworks available. 

ESG reporting standards structure how you measure your company’s environmental, social, and governance performance.  

They offer a standardized set of metrics and reporting guidelines, bringing transparency and clarity to your sustainability initiatives. Therefore, adopting an ESG reporting framework can streamline your reporting process, improve data accuracy, and enhance credibility with stakeholders. 

Let’s take a closer look at three of the most popular ESG reporting standards. 

1. Global Reporting Initiative (GRI): Introduced the first and most widely adopted standards for sustainability disclosure 
2. Sustainability Accounting Standards Board (SASB): Develops industry-specific ESG standards 
3. Task Force on Climate-Related Financial Disclosures (TCFD): Offers recommendations on climate-related financial disclosures 

Discover more ESG frameworks

While critical elements of an ESG report vary by goals and priorities, they typically cover the following: 

• Environmental factors: Information about the organization’s impact on the environment, including water and waste management, greenhouse gas emissions, and energy consumption 
• Social factors: Information on the company’s social impact, including labor practices, human rights policies, community involvement, DE&I, and privacy policies  
• Governance factors: Information about the company’s governance structure and practices, including the company’s leadership structure, compensation, risk management, and business ethics 
• Goals and performance: Measurable targets for ESG performance 
• ESG reporting framework: The ESG reporting standards or frameworks used to create the ESG report (e.g., GRI, SASB) 
• Stakeholder engagement: How stakeholders factor ESG into strategy 
• Risks and opportunities: Identification of potential ESG impacts on the company’s performance and sustainability 
• ESG strategy: An explanation of the company’s ESG strategy, including its priorities, initiatives, and plans 
• External assurance: Independent verification or assurance of ESG data and processes 

ESG report examples

Here are some recent ESG reports you can look at for inspiration: 

• Pfizer’s 2022 Environmental, Social & Governance Report 
• Apple’s 2022 Environmental, Social, & Governance Report 
• Kraft Heinz’s 2022 ESG Report 

With the basics of ESG reporting covered, we can now move on to the six essential steps in ESG reporting: 

1. Identify your material ESG issues 
2. Establish your ESG strategy and goals 
3. Select an ESG reporting framework  
4. Plan how to govern ESG in your organization 
5. Collect ESG data 
6. Present the data in your ESG report 

1. Identify your material ESG issues 

When it comes to sustainability, material ESG issues encompass both a financial and environmental approach: 

• Financial materiality: Potential financial impact — both negative and positive — of sustainability issues 
• Environmental materiality: Effect of company operations on the environment and society 

This is known as double materiality. Companies must examine how ESG risks and opportunities affect their operations and how they, in turn, impact the environment and society at large. 

To identify your company’s material ESG issues, you can: 

• Conduct a materiality assessment 
• Consult your ESG reporting framework 
• Ask stakeholders their take on the most important ESG issues  

Once you’ve identified these issues, assess how they apply across your value chain. This can help you craft your ESG strategy. 

2. Establish your ESG strategy and goals

The next step is seamlessly integrating ESG strategy into your broader business strategy. 

The risks and opportunities of your ESG strategy should be communicated internally and externally, where your company can identify areas for the most significant impact. Additionally, your strategy should outline a clear risk-and-opportunity action plan. 

ESG strategy becomes tactical with ESG goals — relevant KPIs, targets, and metrics assist each goal and enable performance monitoring.  

Examples of ESG metrics include employee turnover rate, waste output, and employee engagement. 

See over 20+ real-world ESG metrics 

An effective ESG strategy is enhanced by ESG goals that are ambitious, measurable, and time-bound. A goal-setting methodology such as objectives and key results (OKRs) is ideal for ESG strategy.  

OKRs use objectives (short qualitative statements of what you’re trying to achieve) and key results (3-5 quantitative metrics depicting goal attainment) to create outcome-focused, trackable goals that align organizations around crucial priorities.  

Read more on the benefits of using OKRs for startups, SMBs, and enterprises. 

3. Select an ESG reporting framework

The right ESG reporting standard to support your ESG strategy and goals comes next. To make an informed decision, consider the following questions: 

• What are your business’s goals with ESG reporting? 
• What outcomes do you hope to achieve? 
• Does the framework align with relevant material ESG issues? 
• Which ESG reporting standard is best suited to your goals? 
• What standards and frameworks are most common in your industry? 
• Is the ESG reporting framework you’re considering transparent/comprehensive? 
• How adaptable is the ESG framework to your unique needs? 
• What costs and resources are required to implement the framework? 

Selecting a framework highly aligned with your organization and stakeholder needs depends on these factors.  

4.  Plan how to govern ESG in your organization

The fourth step of ESG reporting is figuring out how ESG roles, responsibilities, and procedures play out in your company. You must establish: 

• Who manages the daily implementation of ESG practices 
• What resources are dedicated to ESG initiatives 
• Who manages resource organization 
• Which policies and guidelines determine how ESG is implemented and reported 
• How you incorporate stakeholder considerations into ESG practices  
• How you monitor and evaluate your ESG governance practices 

ESG governance planning presents numerous benefits — higher accountability, faster decision-making, and better ESG performance. Additionally, a governance plan ensures consistent and sustainable ESG reporting practices, based on accurate data that drives real impact. 

5. Collect ESG data

Next, you can collect your ESG data for your ESG report through various methods.  

These include internal data sources (e.g., financial reports, customer feedback, employee surveys) and external sources (e.g., industry benchmarks, third-party assessments, and ESG ratings).  

For the best results, ensure your data collection methods are consistent and standardized, enabling accurate comparisons and trend analysis.  

6.  Present the data in your ESG report

After gathering all the necessary ESG data, you can create an ESG report to summarize your data and cover your logic, processes, and actions. Your ESG report should align with the expectations of investors and key stakeholders — they want clear, concise, digestible data presentations. 

Visuals like graphs and charts (to illustrate trends and changes over time) assist your raw data. Along with additional commentary to provide context, your ESG report can explain any improvements or declines in specific metrics. 

To ensure an impactful ESG report for your internal and external stakeholders, consider these best practices first: 

1. Make key information easily accessible (e.g., using an executive summary highlighting performance and associated metrics) 
2. Include forward-looking ESG information, allowing investors to understand the long-term value of your company (e.g., how your company generates value, risks affecting your company’s viability, changing capabilities) 
3. Stay objective when presenting your data, including negative and positive findings  
4. Add data credibility by validating your ESG report externally (e.g., using an independent external assurance provider) 
5. Align your ESG reporting with your financial reporting calendar to save them the hassle of sifting through out-of-sync information when comparing your financial and ESG performance 

ESG reporting is more than just a buzzword — it’s become critical for companies looking to build a positive reputation with stakeholders. Beyond this, as increasing legislation mandates the disclosure of ethical and sustainable practices, ESG reporting has become an essential tool for businesses looking to stay accountable and transparent. When you embrace ESG reporting as part of your business strategy, you're not just meeting new requirements – you're also future-proofing your business. You'll be prepared to tackle whatever challenges come your way in today's constantly evolving business landscape.

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