Navigating the ESG Reporting Landscape
Our world has changed dramatically in many ways over the past few years, including COVID, climate change, social unrest, as well as diversity and equity challenges. In years past, companies tended to focus on their profits for their investors and boards, however that isn’t nearly enough today.
Today, stakeholders and investors expect companies to behave ethically, take care of their people and the planet, and be transparent in the process. With this in mind, why should a company focus on environmental, social, and governance (ESG) reporting in today’s world?
Importance of ESG Reporting
ESG reporting, which is a significant part of corporate social responsibility, is a way for companies to showcase and improve their commitment to sustainable development. The reports provide a user-friendly process for companies to understand their organization’s impacts, improve internal processes, and engage both internal and external stakeholders. Reporting is also a clear avenue for positive public messaging regarding topics that might otherwise go unnoticed.
Elements of Quality ESG Reporting
It isn’t simply preparing and submitting a report. A quality report is meant to be a management tool for stakeholders, including company executives, to make decisions on key topics. These reports are also an effective method of expressing corporate value.
Quality reporting is often more than just the report itself, such as being able to effectively use the compiled data to inform sustainability goals. One example of this is setting greenhouse gas (GHG) emission reduction goals based on report data, including through the development of mitigation plan or a carbon offset program.
Good reporting, of course, begins with choosing the appropriate framework or standard to follow and understanding the requirements thoroughly.
Common Frameworks and Standards
Frameworks can be considered sets of principles that guide how a report can be structured. Standards are the specific, replicable, and detailed requirements for what should be reported for each topic. The following frameworks and standards can be complimentary and are designed for stakeholders and definitions of materiality unique to their sector.
Global Reporting Initiative (GRI)
- creates the global language for organizations to report their impacts
- has a focus around social, environmental, financial, and governance issues
- follows an independent, multi-stakeholder process
- perceived as the most comprehensive sustainability reporting standard in the world
Sustainable Accounting Standards Board (SASB) Standards
- guide the disclosure of financial material sustainability information by companies to investors
- identify the subset of ESG issues most relevant to financial performance in each of the 77 industries its available for
- address the need for ESG disclosure tailored to investors and other financial capital providers
International Integrated Reporting Council (IIRC)
- global collation of investors, regulators, organizations, standard setters, accountants, NGOs, and academia
- focuses on ‘integrated thinking and integrated reporting,’ which will result in more efficient capital to the market, financial stability, and sustainable development
Task Force on Climate Related Financial Disclosures’ (TCFD)
- develops recommendations for effective climate-related disclosures that promote informed investment, credit, and insurance underwriting decisions
- enables stakeholders to understand the concentrations of carbon-related assets in the financial sector and financial system’s exposures to climate-related risks
UN Sustainable Development Goals (SDG)
- universal call to action to end poverty, protect the planet, and improve everyone’s lives
- adopted by all UN Member States in 2015 as part of the 2030 Agenda for Sustainable Development, which set out a 15-year plan to achieve the 17 goals
Climate Disclosure Project (CDP)
- non-profit that manages the global disclosure system for investors, organizations, cities, states, and regions to manage their environmental impacts
GRI, CDP, and TCFD are all considered a combined framework and standard because they direct a reporter how and what to report for the related material topics. SASB is a standard as it directs a reporter what to report.
So how do these reporting frameworks and standards appear on the world stage?
Sustainability disclosure of organizations is most frequent in the European Union, while in Asia, organizations have recently begun to incorporate such practices. North America has mandatory reporting, but there are discrepancies from country to country. This means what companies disclose, reporting formats, and overall structure can be quite diverse.
The common material topics used in the reporting world include climate change, human rights, labor, and anti-corruption. Trade, business models, and supply chains seem to be the most relevant when organizations discuss their economic performance.
The goal globally is that when designing future reporting policy, it will be important for the disclosure of high-quality, pertinent information to provide decision makers and stakeholders of reporting organizations the right information to work with. Ideally, better alignment and consistency through the harmonization of the established frameworks will be beneficial for all reporting organizations.
Reporting on social, economic, and environmental impacts is steadily becoming more of a competitive necessity in the business world. Companies are being encouraged to be increasingly transparent about these impacts to obtain rewards, financial support from investors, and recognition in the marketplace.
ESG reporting also highlights measurable improvement metrics – such as towards achieving GHG baselines or net zero goals – and paves the way to enhanced overall performance.
Of course, with the various frameworks and standards out there to follow, it is essential for companies to have expert support in ESG reporting to ensure they understand the best reporting framework for their organization and the reporting process is streamlined.
With the additional benefits provided by quality ESG reporting, expert support is more vital than ever. This includes the ability of such support to act as a facilitator for organizations to comprehend their profile and business strategy and engage stakeholders in addressing key material objectives as they apply to the reporting process. Discover more on what expert support can do to help you navigate the ESG reporting landscape by visiting RWDI’s Environmental, Social, and Governance page or contacting Elaine Aye.