In recent years, organisations have been focused on embedding sustainability into their operations. Numerous companies are restructuring their business strategies, reorganising their corporate frameworks, and investing significant resources to incorporate ESG into their objectives.
Many have come to see ESG reporting as not just a regulatory burden, but a critical part of running an organisation, and appealing to investors.
Reporting ESG performance in ESG reports is the way to demonstrate this, to investors and stakeholders alike. They have become a crucial way for organisation to show their dedication to the implementation of ESG, and are slowly becoming much more commonplace and in some sectors mandatory.
But, what even is an ESG report?
What is an ESG Report?
ESG reporting is the disclosure of Environmental, Social and corporate Governance data. Much like other kinds of disclosures, its purpose is to shed light on a company’s ESG activities and impact.
An ESG report is used to measure how an organisation’s ESG initiatives compare with industry benchmarks and targets. It offers stakeholders and investors important information that can guide decision-making, pointing out possible opportunities and risks that could impact a company’s worth.
The difference between ESG and similar topics such as sustainability or Corporate Social Responsibility (CSR) is this idea of method vs outcome. Sustainability and CSR function as the methodology that motivates a company to act in the best interest of itself and the world. ESG reporting is the outcome of these methods, and offers stakeholders the necessary ESG information to guide decision-making processes.
What do ESG reports include?
ESG reports include qualitative and quantitative information in relation to its three key topics.
Environmental: This aspect takes into account how a company uses natural resources, the impact that its operations have on the environment and how that affects the communities it operates in.
When assessing how organisations manage the ‘E’, ESG reports tend to focus on three overarching environmental factors:
- Climate and carbon
- Pollution and waste
- Natural resources
This means looking at how an organisation combats climate change; how they reduce carbon emissions; how they preserve biodiversity; how they improve air and water quality; how they manage waste; how they responsibly use their resources and their supply chain.
Social: The S represents the ‘social’ aspect of the organisation and applies to any societal, political or communal impact.
However, unlike environmental or governance concerns, it is harder to pin down what it actually means. One problem is that the ‘social’ aspect is not easily quantifiable, as societal impact is anything that deals directly with people.
Ways in which the Social aspect is analysed in an ESG report can be:
- Workplace culture, and how a company looks after its employees
- Human rights and labour standards
- Diversity, equity and inclusion initiatives
- Employee engagement
- Data protection and privacy
- Community involvement
Governance: Corporate governance is the system a company chooses to put in place concerning rules, controls and policies to ensure a standard of behaviour.
The governance part of ESG looks at a company’s internal controls, and what an organisation is doing to avoid corruption and ensure sustainable investments. This can refer to:
- Policies, principles and procedures governing leadership
- Board composition,
- Executive compensation,
- Audits and audit committee structure
- Shareholder rights
- Bribery and corruption
- Lobbying
Why are ESG Reports so Important?
In this current economic climate, businesses are heavily scrutinised by their stakeholders. A company’s reputation is important now more than ever. Investors, especially, require ESG metrics to confirm that companies are good investments and also reflect their beliefs and principles.
Implementing a thorough ESG strategy guarantees that a company is adhering to ESG regulations, recognising possible opportunities and risks and acting in the best interest of its stakeholders. By providing ESG reports, businesses can demonstrate their progress towards the goals outlined in their ESG strategy, as well as keep stakeholders updated on the significance and effects of the strategy.
Benefits of ESG Reporting:
The main benefit of ESG reporting is building trust with investors, stakeholders, customers and regulators. Effective reporting enables investors to make informed investment decisions. Likewise, public disclosures can give stakeholders confidence that their ethics and values are reflected in the companies they do business with.
ESG reporting ensures that businesses remain committed to their objectives and provides a means to measure their advancement. Transparent and standardised ESG reporting serves as a deterrent to greenwashing as well.
By embracing ESG reporting and incorporating it into their agenda, companies demonstrate accountability to both the public and investors, instilling trust that they are acting in a responsible manner. Establishing this transparency and accountability is a critical step in running a successful organisation.
ESG reports are also, now more than ever, becoming crucial for regulatory compliance.
Although ESG reporting is currently voluntary, regulatory requirements are starting to roll out. The Corporate Sustainability Reporting Directive (CSRD) that came into effect this year means that companies across and beyond the EU will have to begin reporting their non-financial data.
It’s important to start the reporting process now, to give your organisation time to prepare and adapt before becoming inundated with mandatory regulations.
Additionally, having a quality ESG report does more than allow the public and stakeholders alike to see a company’s ESG performance. It can also help forecast potential ESG risks. It is beneficial for a company to have a system in place that monitors ESG metrics in annual reports, that can then indicate both ESG risks and opportunities.
Another benefit of ESG reporting is the possibility to attract ESG-centric investment, or sustainable investment. ESG reporting can appeal to investors and stakeholders who share the same values as the company. It is crucial to establish strong connections with investors and stakeholders who share similar goals, as they can help attract more investment and focus on organisations that prioritise ESG initiatives.
Challenges of ESG Reporting:
While ESG reporting offers many opportunities to businesses, there are still some challenges when producing comprehensive ESG reports.
It can be hard for organisations to identify exactly the areas they need to improve in, and where to place focus on. Identifying which ESG issues are the most important to your company is a subjective task, one that requires time, energy and human resources. Businesses need to choose metrics that match the expectations of both their stakeholders and the overall business goals. ESG issues are not one-size-fits-all; their importance varies based on factors like a company’s activities, location, and supply chain.
Ultimately, it comes down to understanding how, where, and what a company operates. The objective is to focus on ESG issues that are most relevant to the company’s fundamental activities.
Additionally to this, data collection itself can be a complicated, difficult and time consuming task. Gathering reliable and accurate ESG data is a continuous challenge for many companies, especially those who are just embarking on this journey. Many organisations lack a centralised data hub to make this an easier task, and the necessary ESG data is scattered across departments and teams.
Without the right ESG management tools in place, sustainability and ESG teams can become overwhelmed with the sheer magnitude of data required.
While these challenges can impact the process of ESG reporting, they are not an impossible obstacle to overcome. ESG management tools and software do exist, and they can be used to not only minimise the monumental task of data collection, but also help in creating the ESG report itself and establishing ESG goals.
This is how Convene ESG can help you with your ESG reports
Here at Convene we have developed our own ESG reporting tool: Convene ESG.
Our aim is to alleviate some of the challenges of ESG data gathering, performance tracking, and reporting for ESG factors so organisations can move towards global sustainability and net zero.
Designed in collaboration with our clients, Convene makes reporting simple, so you can focus on developing sustainable strategies.
Convene ESG can help you report on a range of existing standards including the TCFD, GRI, SRS, amongst a range of others.
It also has a built-in comparison feature, which allows you to compare against competitors’ formatting of their publicly accessible reports. This will help your organisation develop the best results possible.
It is important to understand the ESG landscape and its regulations, even before these regulations are mandatory, so you can be prepared to face ESG disclosures head on. It helps not only your organisation, but the planet, to focus on how you can improve ESG practices.
You can learn more about Convene ESG, and how we can help your organisation achieve your ESG goals, here.
