ESG or Environment, Social, and Governance is a combination of standards and metrics used to measure an organization’s non-financial performance. ESG is no longer a mere impact report based on storytelling, but a guided set of principles developed by various Not for Profit organizations who have brought about standardization to the reporting process.
There are various metrics that are tracked under Environment, Social, and Governance.
Under Environment, organizations report on topics such as Greenhouse Gas Emissions, Energy, Waste, Water, Air Quality, Materials and Effluents, and Biodiversity. While a lot of focus is currently being given to Carbon Emissions, sustainability goes way beyond emissions to include all the other environmental parameters as well.
‘Social’ refers to the impact an organization has on its people, culture, and communities that it operates in. Social is subjective and organizations across different sectors, and regions, might pick and choose material topics that are relevant to them such as Human Rights and Community Impact, Child and Forced Labor, Diversity and Inclusion, Training and Development, Non-Discrimination, Customer Privacy, Data Security, Occupational Health and Safety, Supply Chain Labor Standards and more.
‘Governance’ while also subjective, provides insights into how organizations perform from a corporate perspective and looks at metrics around Performance and Remunerations, Board Involvement in Sustainability, Conflicts of Interest, Policies, Sustainability Strategy, Managing Concerns and more.
ESG reporting is mandatory across various jurisdictions globally for listed companies. However, the scope is expanding to the private sector as well who need to report on ESG performance to obtain sustainable financing, comply with their client’s Sustainable Procurement Programs and demonstrate their corporate good at a local community level.
The transition from Corporate Social Responsibility (CSR) to Environment, Social, and Governance (ESG) continues to evolve daily. As regulatory requirements are becoming increasingly stringent and Countries setting ambitious Net Zero and broader sustainability goals, it becomes more important for companies to stay compliant with their ESG reporting requirements and take voluntary measures rather than wait for the mandates to kick in and utilize this as an opportunity and gain a competitive edge.
Organizations are increasingly including ESG metrics in their annual reports as well as publishing standalone reports to help stakeholders make more sustainable investment choices. Through ESG reporting, companies can show how they compare to industry benchmarks and targets using qualitative and quantitative data to measure their progress across ESG initiatives. ESG reporting also provides stakeholders with the necessary insights to make informed decisions by highlighting potential ESG risks and opportunities that might affect the company’s long-term value.
There are numerous ways to draft an sustainability report. Typically, they’re created using an established ESG Framework that can offer instruction on which ESG topics to focus on. ESG frameworks also help organizations understand how to best structure and prepare information for disclosure so that they can earn a higher rating or ESG score.
An ESG score is used to track a company’s ESG performance, providing greater visibility into its operations for investors, stakeholders and regulatory bodies. Organizations that provide more robust ESG reports typically score higher, whereas those that do not track or showcase their ESG performance will often have a lower ESG rating.
There are several International Regulatory Bodies that provide a set of recommended climate-related disclosures that companies and financial institutions can use to inform their stakeholders.
Various frameworks have also been created to aid companies in their ESG disclosure. Frameworks can be further categorized into Base Frameworks, Reporting Frameworks, Risk Frameworks, and Rating Agencies.
To maintain good ESG Reporting Standards, Companies need to:
Each organization will have to take a slightly different approach to their ESG Reporting process as mandates and regulatory requirements may vary based on regions and sectors. There are no defined steps to be taken however the following generic approach is relevant and will apply to most companies.
Companies should carefully analyze their material topics and only select the most appropriate ones when commencing with their reporting journey. Selecting more material topics does not necessarily mean producing a better ESG Report. Select topics based on thorough research and to best reflect the stakeholders’ concerns.
After a materiality assessment is completed, the reporting Company should work towards assigning data ownership to various departments and entities as per the reporting boundary, with a central oversight into the overall data collection process.
The reporting Company should also familiarize themselves with the requirements of the framework selected for reporting and assess its readiness to report in compliance with the framework.
Once sustainability reporting reaches a higher level of maturity, it is more about the accuracy and validation of data through assurance as the reports need to be published and made available on various public domains.
With better data and insights, Companies are also expected to demonstrate responsible action in the form of a well-articulated ESG strategy, emissions reduction targets, communicating that effectively is what the larger organizations care about.
Sustainext provides specialized support in ESG Reporting. Our team of sustainability professionals are accredited by leading industry frameworks and can support you throughout the entire process from data management to compliance reporting.
Sustainext’s reporting services can help you effectively align the company’s sustainability reporting to its broader marketing & communications strategy, enabling the broader stakeholders to have a transparent view of the company’s ESG impact.
As a Global Service Provider, we work with Clients from various sectors and using a combination of Consulting and Technology, we can provide clients with a Managed Service that is cost effective, improves efficiencies and accuracies, and reduces turnaround times leading to greater client satisfaction.
