Power Bite: An Overview of ESG Reporting

ESG reporting is a disclosure of environmental, social and governance data. As with all disclosures, its main purpose is to shed light on a company’s ESG activities, while improving investor transparency. Reporting is also an effective way to demonstrate that the company is meeting its goals, and that their ESG projects are not just greenwashing, but genuine.

Types of Reporting

ESG reporting exists in the form of regional reporting frameworks, voluntary standards, and national legislation. Oftentimes, companies will include ESG reporting in their annual reports to demonstrate how sustainable the business is. ESG reports can include both quantitative and qualitative information that are related to the three pillars of ESG: environmental, social, and governance.

Environmental

• Combating climate change
• Reducing carbon emissions
• Preserving biodiversity
• Improving air and water quality
• Combating deforestation
• Managing waste
• Using natural resource responsibly
• Creating sustainable products

Social

• Adhering to human rights and labor standards
• Contributing to the community
• Adhering to health and safety standards
• Promoting Diversity, Equity, and Inclusion
• Investing in the workforce through education and training
• Providing work life balance
• Protecting personal data and privacy

Governance

• Policies, principles, and procedures governing leadership
• Board composition
• Executive compensation
• Political contributions
• Whistleblower programs
• Responsibility to shareholders

All of these pillars require different types of measurement, and it is always good to be measured by a third party provider  such as the GRI (Global Reporting Initiative). It is a framework that helps companies expose both the positive and negative impacts that their businesses have on the environment, economy, and society. The GRI helps companies to demonstrate how they are offsetting the unavoidable damage they may be causing. For example, planting more trees to offset deforestation.

Another reporting initiative is the Sustainability Accounting Standards Board or SASB.  It comprises a set of standards that help companies collect and share ESG data that affect the firm’s business decisions and explain the financial impact of sustainability. They are more sector focused.

This is why the GRI and SASB joined forces in 2020 and have since published a guide to how organizations can use the two standards together. GRI looks at the high-level scope, while SASB gives companies industry-specific guidelines using a financial lens.  Both have very good resource centers where more information can be found.

There are also several other initiatives that companies can be a part of, including the Carbon Disclosure Project (CDP), Workforce Disclosure Initiative (WDI), and Principles of Responsible Investment (PRI). 

Connecting Your Business Objectives to the Metrics

It is important to incorporate sustainability into all leadership and management activities. It should not be relegated to a small unit, or be an afterthought to consider while continuing business activities as usual. The United Nations Sustainable Development Goals are a good framework to do that as they cover all aspects of human activity on all three dimensions of sustainable development: social, economic, and environmental. 

Once the governance and business model are aligned to the sustainability criteria, it is important to establish ESG measuring, and to truthfully disclose ESG performance and engage investors on it. It should not simply be greenwashing, but a genuine business practice. It is also important to think beyond the outputs, such as how many projects you are doing, but also the outcome of these projects.

 

Outcomes would include impacts such as how consumer behaviors are changing, legislations being made to enable and encourage sustainability, changing leadership practices, and so on. Of course, measuring output is needed to ensure that you are fulfilling the business plan, but it is even more important to see what kind of outcome your outputs are making, and what kind of changes they are enabling. Sustainability will not become a part of the company unless there are transformational changes, and transformation in a mindset.

Starting to Implement ESG Reporting

Look at your business plan, and then try to align it with the ESG criteria, and develop Key Performance Indicators – KPIs – to track performance. These will help the company to truthfully and transparently measure ESG, so that they are not accused of greenwashing. It should summarize both the qualitative and quantitative aspects of a company’s ESG activities,  and be communicated in such a way that investors can screen and align investments to their values and avoid companies with the risk of environmental damage, social missteps, and corruption. It’s also a good idea to get audited and scored by third party independent companies, such as Bloomberg ESG data services. 

Mistakes to Avoid

The most common mistake is not having enough knowledge about it, but doing it anyway just because other companies are doing it. What often happens is that companies will start new units focusing on ESG just for show, and then continue on with business as usual. It’s crucial that your entire organization is aligned with your ESG efforts, and that  your  reporting is meaningful – not just a tick-box exercise.