Most businesses already report on their financial performance, but now, it’s becoming more common for organisations to also report on their non-financial actions to stakeholders. But, many companies are unsure of where to start. In this article, we explain the basics.
Non-financial reporting means that in addition to sharing information about profits and losses, companies are also providing updates on areas such as environmental sustainability, social responsibility, and diversity and inclusion.
This trend reflects a growing recognition that businesses have a broader impact on society beyond their financial bottom line, and stakeholders are eager to understand how companies positively contribute to the world.
Disclosing non-financial, sustainability information about your business is important for several reasons:
- It provides stakeholders transparency and trust in your operations
- It offers you insights into improvement opportunities
- It allows you to remain compliant with mandatory reporting requirements
A report of your ESG strategy also demonstrates that you’re taking proactive measures to stay informed about the factors that affect your business and to ensure its long-term survival and success.
But where should a company begin with reporting? Below, we share the steps to sustainable disclosure that should get your business started on the right foot.
1. Conduct a ‘materiality’ assessment
When creating your ESG report, the first step is to consider the issues that directly impact your business and that you are looking to address/disclose, these are known as “materiality impacts.”
|TIP: Water scarcity and over-reliance on fossil fuels are examples of material impacts to consider. Take, for example, a drink’s manufacturer like PepsiCo. For them, water scarcity can significantly impact their production processes, while the volatility of fossil fuel prices can lead to unpredictability in their operations.
The EU’s recent Corporate Sustainability Reporting Directive (CSRD) takes this one step further by asking companies to report on ‘double materiality’. Double materiality means the company not only reports on the impact the environment has on the business, but also the impact the business has on its environment (guide: How to perform a double materiality assessment).
To determine the material impacts on your business, you should look across your entire value chain, from supplier to end user. Engage with key stakeholders of your business, including customers, partners, employees, and investors, and ask them about their values and concerns. By doing so, you establish the dependencies of your company and determine which sustainability issues to prioritise.
2. Identify relevant ESG frameworks
Once you’ve identified your sustainability priorities, the next step is to seek out reporting frameworks that align with those priorities. These frameworks consist of a set of guidelines and standards that provide a clear and structured approach to creating sustainability reports for disclosure.
While regulations on ESG reporting are gradually being introduced, voluntary frameworks like the Global Reporting Initiative (GRI), CDP, OR SASB offer tools for measuring a range of ESG issues such as carbon emissions, human rights, and compliance.
Small and medium-sized enterprises (SMEs) should explore industry-specific frameworks and examine their competitors’ reporting practices to gain insights and ensure they are staying competitive in their sector.
|TIP: You shouldn’t necessarily limit yourself to just one framework. Although there may be similarities between them, each framework has its own unique strengths and areas of focus, and more than one can be used in the process of generating a full report.
3. Gather the data
Once you have determined your KPIs as part of the materiality assessment and the data requirements of your framework, your ESG, and sustainability teams should begin collecting and analysing data from various departments within.
|TIP: Environmental data can be obtained from finance, operations, and facilities. Social data from HR. Governance data from the board, finance, legal, risk, and other relevant parts of the company.
4. Report on your data
Depending on the framework you’re working with, you may need to fill out a questionnaire that covers your company’s ESG practices. Otherwise, use your collected data to create a clear picture of businesses current situation and overlay them with goals and objectives set out in your ESG policy or other framework.
The information you provide should be genuine, without glossing over any negative aspects. Be prepared to offer evidence that supports the accuracy wherever possible, as this will help avoid any accusations of “greenwashing,” where a company makes false or exaggerated claims about their sustainability practices.
Being transparent and providing a clear report helps build trust with stakeholders, including investors, customers, and employees. So, it’s worth investing the time and effort to make sure that your company’s sustainability practices are accurately represented in your sustainable disclosure.
5. ESG messaging
When putting together your ESG report, remember that numbers and data alone don’t always tell the whole story. To really convey the message of your organisation’s sustainability efforts, you’ll want to complement those statistics with compelling narratives and a clear message from the CEO.
To achieve this, it may be necessary to conduct interviews with a range of stakeholders who have contributed data to the report – including employees, suppliers, and others – to provide a human touch and a more in-depth understanding of your organisation’s approach to ESG.
These narratives can make up a significant portion of the report, offering a unique opportunity to personalise your company’s efforts toward sustainable best practices and showcase the real-world impact of your initiatives.
6. Design and production
At this point, all the information for the report should be ready. The next step is to consider its presentation. As humans, we respond well to visual stimuli, so you should create an engaging visual design that effectively conveys your ESG report’s content.
An effective ESG report design should incorporate your company’s brand standards and include well-planned infographics, images, tables, and charts. These visual elements should be used in a way that tells the story of your ESG report in a powerful and captivating manner.
|TIP: Look at competitor reports to see how they’ve compiled their report (example VMware 2022 report), or work with design experts for support.
After finalising both the content and design aspects, the report should be laid out in a way that’s easy for readers to navigate. This is where data can be transformed into visually appealing charts or infographics, and where key messages and stories can be highlighted to bring the report to life.
7. Sharing of your report
Once produced, letting the world know about your ESG report and sustainability report is the final step. It is often useful to employ an outside PR firm, or marketing or advertising agency, to help spread the word or use your social media platforms.
You can also leverage more traditional means such as press releases and media pitches to complement your digital efforts and provide a fully integrated marketing communications program.
Finally, once you’ve created and shared your report, it is helpful to begin planning for subsequent reports. Many companies add to their ESG reports every year as their ESG or sustainability reporting needs or requirements increase over time.
|TIP: Don’t limit yourself to one way of communicating your progress. While interactive PDFs are the most common, consider a microsite, social sharing of content, or updating on a quarterly or semi-annual basis.
Reporting is a continual process, so don’t worry if your first one isn’t perfect. You can iterate to demonstrate successes over time, identify new opportunities, challenges, and future risks as the business grows. Remember that creating sustainable business practices is an ongoing journey, and data is essential to understand where the company stands on critical issues.
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