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 the ESG reporting process, as well as ESG reporting best practices that can benefit your sustainability and social responsibility efforts.
In this article, we'll dive into the main aspects of ESG reporting, including:
- What is ESG reporting?
- Why is corporate ESG reporting important?
- Five benefits of ESG reporting for companies
- ESG reporting frameworks
- What are the key elements of ESG reports?
- Challenges of ESG reporting
- The ESG reporting process
- ESG reporting best practices
What is ESG reporting?
ESG reporting is the process companies use to track, document, and publicly disclose their progress towards ESG goals.
The ESG reporting 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
Why is corporate ESG reporting important?
ESG reporting’s value can’t be understated — stakeholders no longer see it as a voluntary business practice, but as a crucial source of data. 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 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 corporate ESG reporting standards.
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.
5 benefits of ESG reporting for companies
You might be asking, “What’s in it for me?” After all, this introduction of 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:
- Better reputation
- Increased accountability
- Improved trust
- Greater access to capital
- Enhanced competitive advantage
1. Better reputation
ESG reporting involves 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's reputation and attracts greater talent.
2. Increased accountability
ESG reporting is a powerful accountability tool within and outside your organization. Internally, a solid ESG reporting process builds a culture of responsibility, ensuring employees consistently contribute to ESG goals. Externally, corporate ESG reporting keeps stakeholders accountable for their promises.
3. Improved trust
Your business can also use corporate 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 corporate 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, corporate ESG reporting differentiates you from competitors, appeals to customers who embrace ESG, and positions your brand as forward-thinking and socially responsible.
ESG reporting frameworks
With the value of corporate ESG reporting established, we can explore ESG in practice. This involves considering ESG reporting frameworks and standards.
ESG reporting standards structure how you measure and report your company’s environmental, social, and governance performance.
They offer a standardized set of metrics and reporting guidelines, bringing transparency and clarity to your ESG initiatives. Therefore, adopting an ESG framework can streamline your ESG reporting process, improve data accuracy, and enhance credibility with stakeholders.
Let’s take a closer look at five examples of ESG reporting standards.
- Global Reporting Initiative (GRI): Introduced the first and most widely adopted standards for sustainability disclosure
- Sustainability Accounting Standards Board (SASB): Develops industry-specific ESG standards
- Task Force on Climate-Related Financial Disclosures (TCFD): Offers recommendations on climate-related financial disclosures
- The Global Real Estate Sustainability Benchmark (GRESB): Assesses and benchmarks ESG performance of real estate portfolios and companies
- International Sustainability Standards Board (ISSB): develops ESG reporting standards for consistent, transparent, and comparable ESG performance
Discover more ESG frameworks
What are the key elements of ESG reports?
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 reporting examples
Here are some recent ESG reporting examples you can look at for inspiration:
Challenges of ESG reporting
While ESG reporting has increasing in popularity — and the growing number of ESG reporting frameworks reflects that — solidifying ESG reporting within your business isn't without its challenges.
Here are a few ESG reporting challenges businesses typically face when looking to implement and disclose ESG information:
- Availability and accuracy of data: Obtaining reliable and comprehensive ESG reporting data can be a complex and time-consuming process that involves sourcing data from diverse stakeholders (e.g., suppliers, subsidiaries)
- Data standardization: Without uniformity across ESG reporting frameworks, businesses may find it difficult to compare and benchmark ESG performance
- Determining materiality: Identifying the most material ESG issues can be a hefty task, requiring businesses to assess the impact and importance of ESG factors within specific industries, operations, and stakeholder contexts
- Alignment with corporate strategy: Businesses may struggle with integrating ESG initiatives and ESG reporting into their corporate strategy, which is crucial to ensuring sustainable ESG reporting practices
- Communication and transparency: Relaying ESG reporting data clearly and concisely can be a challenge as companies need to strike a balance between providing meaningful information while avoiding greenwashing
The ESG reporting process
With the basics of ESG reporting (and its challenges) covered, we can move on to the six essential steps of the ESG reporting process:
- Identify your material ESG issues
- Establish your ESG strategy and goals
- Select an ESG reporting framework
- Plan how to govern ESG in your organization
- Collect ESG data
- 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.
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.
ESG reporting best practices
To ensure an impactful ESG reporting, consider these ESG reporting best practices:
- Make key information easily accessible (e.g., using an executive summary highlighting performance and associated metrics)
- 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)
- Stay objective when presenting your data, including negative and positive findings
- Add data credibility by validating your ESG report externally (e.g., using an independent external assurance provider)
- 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 in a nutshell
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, corporate 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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