An ESG report is created by analyzing corporate environmental, social, and governance (ESG) to measure the impact of an organization’s policies and procedures in the areas of the environment, social, and governance, which may impact their brand, revenue, company valuation, and market perception, and reduces risk. Publishing corporate ESG reports is becoming more important as customers, employees, and investors want to know what your impact is in these areas. Many companies are just beginning to develop their ESG reporting, and it can feel a little daunting at times.
What is ESG reporting?
ESG reporting is the process of generating a report on ESG considerations and internal ESG data. ESG reports are typically defined from metrics in the areas of environmental, social, and governance.
The ‘environmental’ component addresses the impact and the footprint of an organization on the external environment. These criteria are looked at by investors and capital markets in their evaluations of companies, but also increasingly by employees and customers, who take them into account when assessing their internal policies and managing environmental factors.
The ‘social’ component addresses the way in which organizations manage their relationships and foster their reputation when dealing with employees, vendors and suppliers, customers, and the broader communities where they operate.
The ‘governance’ component addresses the internal system of practices, controls, and procedures organizations adopt to govern themselves, make effective decisions, comply with the law, and meet the needs of external stakeholders.
How to report on ESG
Why is ESG reporting important?
ESG criteria is a popular way for investors to evaluate companies in which they might want to invest, as these metrics can guide investors to those companies that are a lower risk due to their ESG practices. But new imperatives are driving ESG today. These four main imperatives include:
- New stakeholders: Though ESG started as a way for investors to target their investments to environmentally sound areas better, it is now expanding. Employees want to be aligned with the company they work for and are interested in seeing the ESG metrics. Many are focused on gender, pay, and racially equality at work and have started diversity, equality, and inclusion (DEI) councilsor steering committees. Customers are also interested in ESG reports and are starting to base their purchase decisions on a company’s information.
- Transparency: In this new era of transparency, companies that choose not to report in these areas may seem to be hiding something. Even though ESG reporting is nascent, the window is closing for companies, and even private companies will need to report some findings. The good news is that no one is expected to be perfect—but companies need to prove investment in resources and responsibility for making changes. Baselining your ESG metrics is the first step in addressing and progressing internal issues.
- Ratings: Many companies, especially public ones, have ratings by external providers which are publicly exposed. Each ratings company has their own methodology, but in the end, your rating may be on the Internet, whether you are involved in the process or not. A low rating may not indicate improper practices, just a lack of data. By being more transparent and sharing data, your ratings score should improve.
- Regulation: Though there isn’t regulation around ESG metrics, most investment authorities like the SEC or the European Securities and Market Authority (ESMA) are considering which ESG metrics will become required to report on, on a regular basis. Most agree regulation in this area, like what’s been done with privacy, is only a matter of time.
Which ESG reporting frameworks should an organization leverage?
There are numerous ESG-related frameworks that have evolved over the years, each with their own spin and metrics around ESG. By navigating, assessing, and comparing ESG frameworks and standards, organizations can build their ESG programs that their employees, customers, as well as with investors and capital markets’ want to know about.
While these frameworks are non-binding, they represent sets of best practices which can assist organizations comply with binding, legal requirements in jurisdictions around the world, such as the EU Corporate Sustainability Reporting Directive (CSRD) and the EU Taxonomy Regulation.
These ESG Reporting Standards include:
Once you’ve established the frameworks you will use, you will need to kickstart your ESG program. Below are just a few actions you to consider when starting:
Is ESG reporting mandatory?
Though ESG reporting is not yet mandatory in all countries, an increasing number of companies disclose this information voluntarily since they’ve recognized the importance of communicating their business strategy and the impact their business has on our planet. Recently, the US Securities and Exchange Commission (SEC) issued a proposed ESG disclosures rule that would require all publicly traded companies to disclose their greenhouse gas (GHG) emissions and other climate change risks.
Companies can no longer ignore ESG reporting and the value that stakeholders are putting on it.
To learn more about how your organization can go about reporting and disclosure management, check out our Ethics Program Management solution today.