In light of the upcoming Corporate Sustainability Reporting Directive (CSRD) and other key disclosure regulations, this article explores the what, why, and how of effective ESG reporting in 2023 and 2024.
What is ESG reporting, and why is it important?
An ESG report, sometimes known as a sustainability report, is a public document that discloses a company’s performance across three pillars; Environmental, Social, and Governance.
In addition to disclosing what a company is doing to become more sustainable, an ESG report is an important communication tool which allows companies to be transparent about their sustainability practices, as well as the opportunities they are capitalising on to strengthen their efforts, and the challenges which come with going green.
In today’s climate, we see more and more that investors and other key stakeholders are looking to companies for greater information about their performance across non-financial areas. ESG reports have a critical role to play in this reporting and recently, there has been a substantial rise in regulations covering non-financial reporting, for example;
- Corporate Sustainability Reporting Directive (CSRD)
- Sustainability Disclosure Requirements (SDR)
- Directive on Corporate Sustainability Due Diligence (CSDD)
- German Supply Chain Due Diligence Act (the LkSG)
See our detailed ESG regulations explainer for more information.
The benefits of ESG reporting
Some businesses view reporting as simply a compliance exercise -something they must do because regulators say so. However, many successful organisations understand that ESG is more than just compliance. It offers multiple strategic benefits, including:
- Increased transparency and accountability: Reports provide stakeholders with a clear and concise overview of a company’s ESG performance. This can help to build trust between a company and its stakeholders, as well as credibility with investors, customers, local and national governing bodies, and other stakeholders.
- Reduced risk: ESG reporting can help businesses to identify and manage ESG-related risks. For example, a company which relies on something that poses a risk to the environment can use its report to disclose its plans to mitigate that risk.
- Improved performance: Reporting can help businesses to improve their performance by identifying areas for improvement. For example, a company that wants to improve its employee diversity can use its ESG report to track its progress over time.
In short, ESG reporting is not just about following the rules, it’s about good business practice and setting an example.
The challenges of ESG reporting
Sustainability reporting is a new requirement for many businesses and as such, there are a number of challenges for those reporting for the first time. Below are some of the challenges we’ve seen businesses face:
- Regulations, standards, and frameworks: Reporting is a complex and evolving field, with a wide range of regulations, standards, and frameworks to navigate. This can be confusing and overwhelming for businesses, especially those new to ESG reporting.
- In-house skills: Sustainability reporting requires a variety of skills, including knowledge of the aforementioned regulations, standards, and frameworks, as well as the ability to collect, analyse, and report on qualitative and quantitative data. Many businesses lack these skills in-house, which can make it difficult to produce high-quality reports.
- Fiscal constraints: Reporting can be a costly process, especially for smaller businesses, owing to the fact that it requires investment in time, resources, and technology. In a time of economic uncertainty, many businesses are reluctant to make this investment.
- Tackling the supply chain: Reporting often requires businesses to collect data from their suppliers, which can be a challenge, especially for businesses with large and complex global supply chains.
How to get started with ESG reporting
We explain the process of developing an ESG report in greater detail in our 7 steps to sustainable disclosure article, however, in summary, the main steps are…
Develop an ESG strategy
The first step is to create an ESG strategy which aligns with the company’s overall business strategy. This strategy should identify the main ESG issues that are most important to the company and its stakeholders, and then look to set realistic goals for improvement. This can be identified by performing a materiality assessment.
Choose a reporting framework
Frameworks are like a set of guiding principles that help to make sense of the complex information required for an ESG report. There are a number of different ESG reporting frameworks available, such as the GRI, the SASB, and the TCFD. Companies should choose a framework that is appropriate for their industry and reporting needs.
Next, a company needs to gather the data that it needs to report on its ESG performance. This data can be collected from various sources, such as internal records, surveys, and third-party data providers. Data is key, and setting good practices with data collection and storage will help greatly with future reporting.
Prepare the report
An ESG report should be prepared in accordance with the chosen reporting framework. The report should provide a comprehensive overview of the company’s ESG performance, including its goals, progress, and challenges.
Communicate the report
An ESG report should be communicated and openly available to investors, stakeholders, and the public. This can be done through a variety of channels, such as a company’s website, social media channels, and a press release.
Communicating a report correctly is important to avoid claims of greenwashing from stakeholders and to ensure transparency and accountability moving forward. It’s important to remember that there is no such thing as a perfect ESG report, but companies who present their findings and data in an open and transparent way can build greater trust with their customers and stakeholders, and set an example to other businesses.
Best practices for ESG reporting
Here are some additional tips for getting started:
- Start early: For companies with larger supply chains, start the process early, it may take a significant amount of time for you to obtain all the information you’ll need from your suppliers.
- Start small: If your company is new to ESG reporting, it’s best to start small by reporting on a few key ESG issues, you can then gradually expand the scope of your reporting over time.
- Be transparent: ESG reporting is about being transparent about your company’s ESG performance. Be honest about your strengths and weaknesses, and be clear about your plans for improvement.
- Engage your stakeholders: Involve your stakeholders in the reporting process. This will help you to identify the ESG issues that are most important to them, and to get their feedback on your report.
- Prepare your business: Get everyone talking the same language when it comes to ESG. Not only do rating agencies and reporting frameworks use training as a measure of ESG effectiveness, but it will help in the data gathering process if there is consistency across the board.
Best technology to use for ESG reporting
There are many ESG reporting solutions available on the market to help businesses with the reporting process, and using these tools can:
- Speed up the reporting process: With the right ESG solution, companies can manage their ESG reporting quickly, securely, and efficiently. This helps identify the stakeholders involved in each part of the report and helps to define the data flow of the information the report is based upon.
- Connect reports directly to source data: An ESG solution allows companies to connect their data directly to their reporting efforts. This makes it easier to adapt to new reporting requirements and capture changes in real-time, resulting in reports that are always up-to-date with the latest and most relevant figures.
- Reduce errors in ESG reporting processes: ESG solutions help companies automate the process of report creation and revision, eliminating manual processes and reducing errors and risks.
Leading ESG reporting vendors
Each year, research firm Verdantix releases its selection for the leaders in the ESG and sustainability space. The report evaluates vendors to determine their position as either leaders, innovators, challengers, or specialists.
Below is the edited 2023 selection.
Examples of ESG reports
Sustainability reports have become a common practice for many of the world’s largest companies. By reviewing these reports, we can gain a deeper understanding of the work that goes into developing and implementing effective and impactful sustainability initiatives and eventually reporting on them.
Below are some examples of established ESG reports:
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