Environment, social, and governance (ESG) reporting is the disclosure of environmental, social, and corporate governance data. Its purpose is to shed light on a company’s ESG activities, improve investor transparency, and inspire other organizations to do the same.
As it stands, uniformity in ESG reporting is low, while investors’ demand for consistency is high. For organizations without a formal reporting framework, the time has come to prepare for ESG reporting.
Tackling ESG
When it comes to ESG, organizations need to do more than just set initial goals. Your company must develop an action plan, measurement strategy, and reporting framework. Doing so makes it possible to assess whether you’ve actually achieved your goals and made an impact.
To create a strategic plan, focus on these five areas:
- ESG transformation: What actions can your company take to radically transform your business to account for ESG?
- Net zero emissions: How can your company work toward a carbon-neutral status?
- Sustainable and responsible sourcing: Companies have readily adopted supply chain diversity in recent years, but what about carbon, water, waste, and other elements of ESG that many companies still need to tackle with their suppliers? What work do you have left to attain a sustainable and responsible supply chain?
- Circularity: What is the circular economy that your company has developed so that your products come back to you in some way?
- Equitable and inclusive society: How does your company impact the communities you exist in?
While these five focus areas only encompass part of the full spectrum of ESG goals and objectives, they’re a great jumping-off point for companies trying to understand where they are and the work they have left to accomplish. From there, it’s easier to formulate a plan and begin to track and measure progress.
The current status of ESG
Historically, conversations surrounding ESG have heavily focused on the environmental component while the social aspect took the backseat. However, the environmental and social impact components must be interconnected to transform ESG from a side project to the core of how businesses and organizations exist day-to-day.
To improve their ESG programs, companies first need to conduct an internal assessment and ask questions about their current practices. What do you know about your existing programs? What do these existing programs measure? How are they reporting their impact?
The good news is that across corporations, many efforts are being measured today, such as community involvement, greenhouse gas emissions, Diversity, Equity, Inclusion, and Belonging (DEIB) metrics, and employee wellbeing. Over the past few years, there’s been an effort to understand what’s going on inside companies and the impact they have on communities.
Despite the increase in reporting on human rights, workplace safety and health, and greenhouse gas emissions, there is still work that needs to be done regarding reporting on ethical sourcing, DEIB, and employee wellbeing.
The importance of ESG reporting
As companies continue to expand their target areas and measure their impact, they must report their outcomes to internal and external stakeholders. Transparent and consistent reporting is the crux of ESG, especially with discussions around greenwashing. Sometimes, unintentional greenwashing occurs when an organization’s management team makes “false, unsubstantiated, or outright misleading statements or claims about the sustainability of a product or service, or even about business operations more broadly.”
Greenwashing makes customers and supporters question if the dollars they invested truly made an impact. This is where having good data matters—if your organization has a standardized process for measuring impact and a consistent reporting framework, your efforts will come across as trustworthy.
Additionally, while most ESG reporting is currently voluntary, the SEC is currently formulating a proposal to require public companies to disclose climate change-related risks to investors in regulatory filings like annual reports. To prepare, companies should establish consistent, repeatable processes for ESG data handling and reporting. Compliance departments can develop procedures for third-party verification and identify other potential risks, such as gaps in reporting.
Eventually, these standards will apply to the social impact component of ESG. By developing structures and processes for measuring factors like access to food and water, public health measures, and access to education, companies will stay ahead of the regulatory community and demands from investors. This will be a major differentiator for companies that are innovative and forward-thinking.
Stay compliant and transparent about ESG
ESG reporting shows your business’s stakeholders that your organization is reliable, trustworthy, and sustainable. Take steps to implement a framework that will help you collect data, organize your efforts, and create reports to streamline your ESG goals.
